Measuring Financial Subsidies to SOEs: An Asset Return Based Framework with an Application to TVA
By
Despite the large and growing importance of SOEs in the world economy, the question of how to comprehensively measure the financial subsidies that governments confer to them has received little attention. Financial subsidies lower the financing costs for SOEs relative to their private sector counterparts via preferential terms on securities such as government-owned or guaranteed debt and equity investments. We develop a practical and theoretically-grounded framework that can be used to estimate the value of government financial subsidies to 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, by relying primarily on accounting data and pivoting to the asset side of the balance sheet. 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.
