Discussion paper

DP13267 Burning Money? Government Lending in a Credit Crunch

We analyze a small, new credit facility of a Spanish state-owned-bank during the crisis, using its continuous credit scoring system, firm-level scores, and credit register data. Compared to privately-owned banks, the state-owned bank faces worse applicants, softens (tightens) its credit supply to unobserved (observable) riskier firms, and has much higher defaults. In a regression discontinuity design, the supply of public credit causes: large positive real effects to financially-constrained firms (whose relationship banks reduced substantially credit supply); crowding-in of new private-bank credit; and positive spillovers to other firms. Private returns of the credit facility are negative, while social returns are positive.


Jiménez, G, J Peydro, R Repullo and J Saurina (2018), ‘DP13267 Burning Money? Government Lending in a Credit Crunch ‘, CEPR Discussion Paper No. 13267. CEPR Press, Paris & London. https://cepr.org/publications/dp13267