The article presents an application of microsimulation to modeling of firm behavior in an economy-wide framework. The model is used to investigate the response of industrial corporations to investment subsidies in the Netherlands and traces the effects to the macro economic level. The microsimulation model enables direct estimates of the changes in expected profitability and liquidity effects. The results indicate that investment subsidies that have been used in the Netherlands during the 1980s were insufficient to alter investment decisions dramatically. An unintended side effect of the subsidy was an improvement of the solvability position of firms.
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