Federal Credit Programs and Local Economic Performance

Several theories of externalities and asymmetric information suggest a positive role for government programs to assist credit markets, though potential distortions by special interests carry attendant dangers. The authors examine the empirical association between funding by several federal government programs and subsequent economic performance, measured six ways, for U.S. metropolitan areas during the 1990s. Significant differences are found across programs and performance measures. Observed trade-offs suggest a need to compare policy objectives with acceptable costs in many cases. Overall, the results are consistent with theoretical predictions and with some standard policy objectives.