Interest Subsidy Research Articles

Targeted Interest Subsidy on Education Loans in India

Targeted Interest Subsidy on Education Loans in India

An Economist's Perspective on Student Loans in the United States

In this paper, I provide an economic perspective on policy issues related to student debt in the United States. I lay out the economic rationale for government provision of student loans, summarize time trends in student borrowing, describe the US loan market, then turn to topics central to the policy discussion of student loans: whether there is a student debt crisis, the costs and benefits of interest subsidies, and the suitability of an income-based repayment system for student loans. I close with a discussion of the gaps in the data required to fully analyze and steer student-loan policy.

Analysis of the Response of Small and Medium Farmers Incentives for Investment in Water Saving

The review of current water balance of Tunisia as a result of increasing demand and a stagnant supply reveals a situation of water stress, an endowment of nearly 450m3/an/habitant. The irrigated sector, the largest consumer of this resource (80%) would be the first affected by this situation. To reduce the effects of water scarcity on irrigated agriculture, the government has designed and implemented since 1995 a national program of water conservation. Significant positive incentives have been decided to encourage farmers to adopt new irrigation techniques offered by this program. It is clear that despite the importance of subsidies for investment in water-saving equipment (60% of the amount invested), the equipment rate remained below the expected objectives. The present work aims to define a methodological approach and test to explain the slow growth of water-saving program and analyzing adoption decisions of the proposed techniques by small and medium farmers. The data used to estimate the model specified is collected by survey of 40 small and medium farmers belonging to a private irrigated area Abida Kairouan Governorate. The results show that the effects of eliminating the interest subsidy is higher than the subsidy rate of capital. So the reaction of small and medium farmers is slow vis-a-vis technological change, and must be supplemented by other types of interventions. Thus, the instrument implemented is not effective. The remainder of paper is organized as follows: In the first section, we will present the general framework and then the specific context and the background information in order to introduce the problem and the research methodology. The second section will develop the background literature of our work. In the third section, we will discuss the various results of the work. Finally, the last section talks about the findings and to remember the different political implications of this research.

The Impact of Competition, Subsidies, and Taxes on Production and Construction Cost: The Case of the Swedish Housing Construction Market

Few empirical studies focus on developing data and analyses on the factors that influence the decision making process of builders, developers and landlords. Interest subsidy, taxes, and competition are some of the factors that can influence the level of construction or production costs and ultimately the price of the housing units produced. Different subsidy schemes and value-added taxes (VAT) have been used as tools to increase housing construction in Sweden. However, their effect on costs of the housing stock has not been rigorously examined in the current housing supply literature. The aim of this paper is to investigate the relationship between production and construction cost and its determinants especially their relationship to different subsidy schemes and value-added taxes. In our econometric analysis, we utilize a quarterly panel data that covers 1975–2004. Our results suggest that there is a positive relationship between subsidies and construction cost and inverse relationship to value added taxes. This could explain why few companies within the housing construction industry raise the cost of production since these companies could manage to transfer some of the tax burden from themselves to the housing developers. Paper goes on to discuss common practices of construction companies that affects production costs.

How Effective are New Entrant Schemes for Farmers?

SummaryThe two main policy approaches to promoting structural adjustment in EU agriculture are Farmer Early Retirement Schemes and New Entrant Schemes for Farmers. The evidence suggests that the former do not represent value for money. We report the results of a farm business modelling exercise using a sample of Northern Irish farm businesses from the Farm Accountancy Data Network to compare and contrast ex ante the effectiveness of two alternative approaches to a New Entrant Scheme, a working capital installation grant and an interest subsidy on a farm development loan. The interest rate subsidy on a farm development loan appeared to provide much better value for money in that it resulted in consistently superior performance across all of the farm performance indicators used. These outcomes were achieved despite the assumption of a very modest return of 3 per cent on the investment in the farm business. We postulate that the benefits of the interest rate subsidy are associated with the potential dynamic impacts of the farm investments, linked to the long‐term effects of differences in age related lifecycle goals. The reform proposals for the post‐2013 CAP to assist the setting up of young farmers could potentially capture these farm business dynamic effects.

Analyzing the effect of advanced agriculture development policy

This paper broadens the scope of current theoretical studies, divides rural agriculture into two sectors—advanced and traditional, and takes into consideration the land factor and the urban informal sector. Under the assumption that wages in the advanced agricultural sector are higher than in the traditional agricultural sector, this paper analyzes the effect of policies to promote advanced agricultural development with the comparative static method. The main conclusions of this paper are: wage subsidization of the advanced agricultural sector, in addition to having the same economic impact as interest subsidies on the advanced agricultural sector, could also increase the land employment in the advanced agricultural sector and reduce that in the traditional agricultural sector. Therefore, the effect of wage subsidizing policies is stronger than that of interest subsidies, while land rent subsidies for the advanced agricultural sector have the same economic effect as wage subsidies.

KAJIAN SUBSIDI DAN PENJAMINAN PEMERINTAH DALAM PROYEK PENYEDIAAN AIR MINUM BERDASARKAN PRINSIP SYARIAH

This study aims to determine the possibility of granting of guarantees and interest subsidies by central government in· order to accelerate the provision of drinking water, as stated in the Presidential Regulation 29 of 2009, based on Islamic principles.
 This research uses descriptive qualitative method. Collecting the data used in this study using the literature study. Data collected through the research literature related to the topic of study to obtain secondary data.
 It was concluded that the government guarantee as stipulated in the Presidential Regulation 29 of 2009 can be implemented based on Islamic financing and using the kafalah and the qardh contracts. The Kafalah contract put. the Government as guarantor (kafil).The Qardh contract implementation would be used in the event of payment of guarantee claims. The Qardh put the Government as provider of funds for payment to Islamic banking. Upon payment of warranty claims, the Government may request repayment to PDAM and local government. The interest subsidy in the Presidential Regulation 29 of 2009 can be converted into margin subsidy using the Hawalah contract, the Government accept the transfer of liability to the bank On the basis of the realization of partial payment obligations through subsidy mechanism, the Governement waived the right to claim to PDAM.
 Keywords: Government Guarantee, Interest Subsidy, Islamic Financing; The Fast Track Program Of Water Supply

Optimization of Business Partners Feasibility for Oil Palm Revitalization Using Fuzzy Approach

Resource potential of North Sumatra supports the idea to make North Sumatra as a national barometer of oil palm. The development of agro-CPO and its derivatives have great potential to grow rapidly because it is still 5.5% of the area planted with oil palm than 133 million hectares of potential land. Efforts to strengthen the availability of raw materials for CPO agroindustry and its derivatives by conducting Plantation Revitalization required with financial support from the banking system. Program of Plantation Revitalization is an effort to accelerate the development of smallholders through the expansion, replanting and rehabilitation of plantation-backed loans and investment of banking and interest subsidy by the government involving plantation companies as partners of the development, processing and marketing. The role of banks is quite large, but face problems of the large risks involved and the complexity of processes. Methode of Fuzzy Analytic Hierarchy Process and Fuzzy Inference System integrated in the studies conducted. In AHP Fuzzy method, based on expert opinion the weighting criteria is resulting. Weighting being input to the FIS method to determine the feasibility of plantation companies as business partners to obtain credit financing. The study results show that not only financial performance but also non-financial performance should be taken into account in determining the creditworthiness of Revitalization Plantation program.

Collateralized Bond: Duration and Effective Yield

Collateralized bonds have been developed and sold by investment bankers in place of zero-coupon bonds to raise funds for companies facing cash flow problems. Additional bonds are issued and proceeds are deposited in an escrow account to finance the coupon payment. Our analysis indicates that a collateralized bond is equivalent to a zero-coupon bond only if the return from the escrow account is the same as the yield to maturity of the collateralized issue. In reality, the escrow return is lower than the bond yield. As a result, the firm provides interest subsidy through issuing additional bonds which leads to higher leverage, greater risk and loss of value compared to a zero-coupon issue.

Saving and retirement behavior under quasi-hyperbolic discounting

This paper investigates saving and retirement behavior using a quasi-hyperbolic discounting model with endogenous labor supply. The behavior of quasi-hyperbolic-discounting consumers is compared with optimal behavior, which is obtained under exponential discounting. The quasi-hyperbolic discounters, whether naive or sophisticated, under-save and retire early compared with an exponential discounter, if and only if the present-biased marginal utility of future consumption decreases with stronger present bias. Logarithmic utility functions and constant-absolute-risk-aversion utility functions can both exhibit this property. In other words, quasi-hyperbolic discounting explains why, consistent with previous empirical studies, under-savers might also be early retirers. Under logarithmic utility, a wage tax and an interest subsidy can counteract the under-saving and early retirement and improve consumer welfare.

A Study on Measures for Efficient Operation of the Agricultural Policy Loan Interest Subsidy

A Study on Measures for Efficient Operation of the Agricultural Policy Loan Interest Subsidy

L'allevamento bufalino in Campania: evoluzione e politiche

This note will examine: 1) the size and location of buffalos and buffalo farms in the Italian regions over the past decades; 2) the evolution of some structural and technological characteristics of the buffalo farms in a particular area around the river Sele, called Piana del Sele, where, at the end of World War II, there were the largest part of the last twelve thousand animals survived the war and where the modern farming system was born; 3) the major and most recent zootechny policies implemented in the Campania Region; 4) the reasons why only a small percentage of buffalo farms has received the incentive provided by the Region for the farm modernization; 5) the compatibility between the factors of evaluation, used by the measures 4.8 of the por 2000-2006 and 121 of the psr 2007-2013 for the reception of farmers’ applications, and the characteristics of the buffalo sector. During the period 1990-2009, there was a strong decrease of Italian farms with cattle, pigs, sheep, goats, horses, poultry and rabbits. Except in the case of pigs, there was a reduction also in terms of animals but its percentage value is smaller, indicating a general phenomenon of production concentration. Regarding the Italian buffalo industry, by contrast, both farms (33%) and animals (317%) have increased and the number of regions involved in this kind of activity has grown from 4 (1980) to 19 (nowadays), while the provinces have increased from 8 to 84. The Campania region has always held the leadership of the sector; in 2009, the number of buffalo farms in Campania represented the 55.5% of the Italian value and the share of buffalos, reared in the region, was 71.6%. In addition, from 1990 to 2009, the average number of buffalos per farm almost tripled (from 56.1 to 161.9). At national level, the analogous index increased from 40.1 to 125.6. In order to study the evolution of some structural features and technologies, the analysis focused on the province of Salerno and, in particular, on the above mentioned area around the river Sele; therefore, a survey was carried out in that district by administering a questionnaire to n. 100 entrepreneurs of the sector, chosen with a non-probability quota sampling. Only 7% of the buffalo farms in the province of Salerno have received incentives within the measure 4.8 of the por Campania 2000-2006; after 16 months from the first call of the measure 121 of the psr, buffalo farms’ applications are only 4.0% of the total. That is why it seemed necessary to examine whether the assessment factors of the two measures were and are compatible with the requirements of farmers and farms of the sector we are studying and whether investments planned for farm modernization by those measures were and are compatible with the needs of such industry; therefore, it was administered a questionnaire on the factors of assessment used by the two measures to 20 privileged witnesses. Through a structured technique for dealing with complex decisions, the Analytic Hierarchy Process (ahp), a specific weight was attributed to each factor of assessment in terms of its importance and according to the preferences expressed by the actors interviewed. The weight values resulting from the analysis are closer to those used for the por than to those used for the psr. The incentive scheme, based on capital contribution (40-60%), was indicated by farmers as the main impediment to the use of resources for farm modernization by buffalo farms, as it was and is more suitable for firms with a greater economic dimension. It is, therefore, desirable to also introduce interest subsidies with certain maximum rates paid by farmers. It should also be carefully evaluated the convenience of using different assessment factors for the various sectors of the regional agriculture, in order to better compare the applications among each other, make ranks and provide that investments go in the direction of the actual and urgent needs for the modernization of the different production processes that exist in the Campania region.

Economic feasibility of timber management in extractive settlement projects of southwestern Amazonia

Even recognizing the frailty of an isolated financial analysis for casting a glance at sustainability, it was decided that the analysis should be done because it is the market rationality, more financialized today than ever before, that embraces the macro environment in which to base forestry management, and thus it decisively influences its technical and decision-making foundations. Profitability is the most significant indicator of success, according to hegemonic thought. This work aims to investigate whether extractive forestry management as practiced in two communities of Acre state is financially feasible on the scales adopted for the 2005/2006 crop, and also to test result sensitivity against interest rate and subsidy swings. Net Present Value (NPV) was the indicator of choice to verify financial feasibility. Within the context of this particular subsidized crop, all six scales were found feasible, at all discount rates being considered. However, this feasibility is only confirmed upon evaluation of the cooperative's cash flow - which ultimately is an extension of each forest worker's cash flow -, resulting from subsidies granted on the price paid for timber. In a hypothetical situation, where subsidies are removed, only the larger scale operation (9.8 m³/ha) showed a positive NPV, again at all rates being considered.

The effect of subsidy on housing construction in various regions of Sweden

PurposeThe purpose of this paper is to explore the extent that interest subsidies have impacted on the total production of Swedish single‐ and multifamily houses. It also intends to examine whether tenure neutrality provision of interest subsidy that subsidy policy advocates was maintained.Design/methodology/approachUsing a multiple regression of two models, a balanced panel data from 1975 to 2006 that consist of various related construction cost variables of all regions of Sweden will be analyzed. Instrumental variable (IV) and seemingly unrelated regressions (SUR) will be utilized to examine the role of subsidy on housing production and tenure neutrality, respectively.FindingsThe results seem to indicate that a general subsidy is expected to be ineffective since it may increase the existing stocks of a low demand region but not the housing stocks of big regions where the demand is high. Moreover, a targeted subsidy may change the balance between different types of housings since lower construction costs due to the subsidy could favor the development of certain profitable housing types.Originality/valueThe paper tries to substantiate (empirically) the assertion that subsidy policies contributed both to the production of housing units in low demand regions and distortion of the preference of different tenures.

Student Loans Reform in China: Problems and Challenges

Student loans schemes have developed rapidly alongside China’s move towards mass higher education. In this paper, the main features of the existing four types of student loan schemes are compared. In particular, the providers of principal loan, borrower eligibility, loan size, loan origination, interest subsidy, risk‐sharing, repayment conditions and loan collection are examined. The authors of this article will then predict the problems and challenges confronting the reform of the student loans system in China and suggest that the feasible option for the future is to allow for the co‐existence and competition of a variety of student loans schemes and to explore more mature student loans schemes through institutional innovations.

Support Measures for Reconstruction of Condominiums Damaged by Earthquakes —Comparative Study on the Hanshin-Awaji Earthquake of 1995 in Japan and the 921 Chi-Chi Earthquake of 1999 in Taiwan—

The aim of this study was to compare the characteristics of reconstruction of condominium buildings and the associated support measures for the Hanshin-Awaji Earthquake of 1995 in Japan and the 921 Chi-Chi Earthquake of 1999 in Taiwan. We found that the system and structure of support after both earthquakes were similar: the basic measures included subsidies, interest subsidies, deregulation for rebuilding, and participation of semi-public organizations. After the 921 Chi-Chi earthquake, the objectives were both rebuilding and repair, and these were supported by an extensive and multiple system involving both government and a semi-public fund, whereas after the Hanshin-Awaji earthquake, the principal objective was rebuilding, and this was expedited by rapid modifications to existing systems. Despite the presence of powerful supporting mechanisms, progress in rebuilding following the 921 Chi-Chi earthquake was slower than that following the Hanshin-Awaji earthquake because of the relocation of owners and delays in the establishment of support measures. In the case of the Hanshin-Awaji earthquake, the immediate arrangement of supporting measures and the time limit on demolition of damaged buildings at public expense expedited rebuilding not only of heavily damaged buildings, but also those with medium damage.

A Stability and Social Investment Facility for High Debt Countries

A number of high-debt emerging-market economies face structural, long-term debt problems that tend to keep their growth rates low, that impart an unequalizing bias to the growth process, that severely constrain social spending and human development, and that make them vulnerable to capital flow reversals. Unless the nature and pace of growth can be improved in these lower-middle income countries, the Millennium Development Goals (MDGs) are unlikely to be met either in many of these countries, or globally. These high-debt emerging-market economies face an impossible choice between draconian and never-ending fiscal austerity, or crisis and a “debt event.” Both “bitter pills impose high social and economic costs. This paper proposes the creation of a “Stability and Social Investment Facility” (SSF) to be housed either at the IMF or the World Bank. It would be a long-term facility to help high-debt emerging market countries cope with and ultimately overcome what will otherwise remain a chronic structural weakness. The SSF would be an instrument providing a steady and predictable source of long-term funds as well as a strong policy signal to help high-debt emerging-market economies reduce their debt burden without having to forgo vital pro-poor social expenditures and growth programs. For the facility to have a significant impact on debt and income dynamics in the eligible countries, we estimate it would need to lend $10-20 billion a year. The financial cost to the donor community would be the interest subsidy built into the SSF; were the subsidy 200 basis points, the cost in the first year would be $20 million for every $1 billion of lending. The rationale for the subsidy element is its catalytic role in facilitating a strong commitment to both prudent macroeconomic policies and pro-poor growth policies. The lower interest cost of the SSF, even if modest, would make it financially and politically easier for governments in eligible countries to address their long-term social (MDG) objectives, while maintaining a sound fiscal stance. * This paper was previously titled “A Stability and Growth Facility.”

Rural Finance in Contemporary Times: Interface with Microfinance

In India, when we talk about rural finance, the stereotype offered is that of a banking system that fails to reach out to the poorer clients and, when it does, fails to recover the money so disbursed. The counter-point offered is usually the magic wand of microfinance. This Colloquium was an interface between leading bankers and microfinance practitioners in India to examine where these two worlds meet and how they could learn from each other. The discussions were organized around three themes: a) the legacy of the banking system, b) the limitations of microfinance, and c) an assessment of the potential. On the issue of legacy, the message was clear that the intervention of the state in certain aspects has been undesirable. These areas were clearly identified as granting general pardon for loans, tinkering around with interest subsidies, and interfering with the commercial aspects of banking. The limitations of the microfinance institutions were in terms of their sustainability and their inability to draw commercial capital and grow rapidly. However, these limitations were partly seen as a consequence of regulatory apathy and support from the state both in terms of formulating and articulating a regulatory framework and also in terms of the central bank being reluctant to supervise the efforts. These did not help in enhancing the legitimacy of microfinance institutions. The participants saw a great potential in the rural markets which were beyond agriculture. The emerging sectors were identified as construction, non-farm enterprise, handloom, clusters that involve garment making and quarrying, etc. According to them, there was scope for both the banks and the microfinance institutions to intervene. The following points emerged from the discussion: Rural finance has suffered from interventions from the state in the past. While some interventions have been positive, they have harmed the sector when compromises such as write-offs have been made. Microfinance has emerged as an important mechanism to reach out financial services to the poor. There are interesting lessons from this for the banks to adopt. There are problems for the microfinance institutions in the form of regulatory and supervisory apathy. This leads to financial exclusion of large segments of the poor. There is a huge market for financial services — both loans and savings. Innovations across the world indicate important breakthroughs in delivery of financial services. These can be implemented provided the regulatory impediments are removed. The issue of risk management has to be systematically addressed. The role of the state, wherever positive, has been effective and, therefore, this should be sharply defined to see how the state could contribute to this sector. The issue of interest rates continues to be vexatious and needs to be addressed urgently.

Grants versus Loans for Development Banks

In recent years, economists have increasingly debated whether multilateral development banks, such as the World Bank, should switch from making subsidized loans to giving outright grants. It is no small question. The combined loans of the World Bank Group and brethren regional entities such as the Asian and Inter-American Development Banks, approach $300 billion. Their funds constitute a main channel through which rich country governments provide assistance to developing country governments. In Bulow and Rogoff (1990), we first developed the case for a shift to outright grants. We argued that under the status quo, a vastly disproportionate share of aid goes to middle income countries via disguised interest subsidies, rather than to the poorest countries. We also argued that a shift to grants would protect donor banks from sometimes having to play a “bad cop” role when trying to collect net repayments rather than fully rolling over loans. The “Meltzer Commission” (International Financial Institution Advisory Commission, 2000) report on government sponsored international lending institutions famously took a similar view. Supporters of the status quo often argue that development bank loans to middle income countries are in fact highly profitable, and are essential for allowing institutions like the World Bank to subsidize aid to poor countries. We shall argue that the Bank’s profitability is an accounting artifice that greatly underestimates the risks of the Bank’s portfolio. Another argument for loans is that multilateral development banks have a superior enforcement technology that helps international debt markets to function more efficiently. Thus loans allow financially strapped governments, including in middle-income countries, to borrow more than they could otherwise. We will argue that this benefit, too, is an illusion. In those cases when official lending does expand a developing country government’s borrowing capacity, it effectively enables the government to commit the country to repayment levels beyond that supported by domestic political consensus, creating moral hazard for shortsighted rulers. In theory, better credit access to finance, say, public infrastructure projects can be highly beneficial. In practice, however, the increased risk of debt crisis all too often outweighs any gain ordinary citizens might enjoy from the loans. Furthermore, moral hazard on the part of lenders, who may be able to induce rich countries into subsidizing the bailout of troubled middle-income borrowers, may mean that aggregate lending is excessive even if multilaterals merely displace equivalent private debt. We do not argue for eliminating assistance to middle-income countries. On the contrary, we would favor expanding aid in general, albeit in far greater proportion to the world’s poorest countries. Note that in principle, any country with market access could use grant flows to help defray interest rate costs on loans if it so chose, but development banks would never need to assume a “bad cop” role in enforcing debt.

A preliminary evaluation of financial incentives for renewable energy technologies in India

The Government of India has been providing various financial incentives including capital subsidy, interest subsidy and depreciation related income tax benefits with the objective of promoting development and dissemination of renewable energy technologies in the country. These financial incentives have, however, changed from time to time in their type, magnitude, scope and even geographical coverage. In some cases, the state governments have also been providing additional incentives. It is therefore, necessary to undertake a detailed evaluation and comparison of different financial incentives provided for dissemination of renewable energy technologies in India (provided in the past as well as the existing incentives) to facilitate a comprehensive grasp of these measures for future planning. An attempt in this direction has been made in this paper. Simple mathematical expressions have been derived to facilitate comparison among some of the commonly provided financial incentives. Results of some exemplifying calculations for three solar energy systems have been presented and briefly discussed. Copyright © 2004 John Wiley & Sons, Ltd.