ESM-UNI.LU Seminar with Prof. Deborah Lucas, MIT Sloan School of Management

Abstract: Despite the large and growing importance of SOEs in the world economy, the challenge of how to comprehensively measure the financial subsidies that governments confer to them has received little attention. Financial subsidies lower SOEs' financing costs relative to their private-sector counterparts by providing preferential terms on securities, such as government-owned or guaranteed debt and equity investments. We develop a practical, theoretically grounded framework for estimating the value of government financial subsidies for most types of SOEs. The approach addresses the challenges of limited market data, the complications arising from interactions between the value of different types of financial subsidies, and the risks of omissions and double counting. It does so by pivoting to the asset side of the balance sheet and relying primarily on accounting data. The example of the U.S. government-owned Tennessee Valley Authority illustrates how the approach can be applied, and the substantial hidden subsidies that it can reveal. Registration is mandatory for all attendees.