LAUSR

ABSTRACT Credit Guarantee Schemes (CGSs) issue partial guarantees to cope with financial instability and moral hazard problems on the part of the borrowing firms. Our paper focuses on the magnitude of partial coverage ratios, proposing and applying a dose–response model to identify both the minimum (below which guarantees are not effective) and optimal (the one maximizing the guarantees effectiveness) magnitude. Consistently with theoretical prescriptions, an inverted U-shaped relationship is found for a sample of Italian firms, with the maximum of the effectiveness around 70% and no effects below 55% and above 80%. Our approach and findings seem useful to support policy makers in fine-tuning CGS policy.