Indirect finance

Indirect finance is where borrowers borrow funds from the financial market through indirect means, such as through a financial intermediary.

Common methods for indirect financing include a financial auction (where price of the security is bid upon) or an initial public offering (where the security is sold for a set initial price).

This is where the government gives privilege, in the form of reduced tax burdens, as a means of supporting a particular interest rather than collecting and redistributing tax revenue (which would be considered as a direct financing method by the government).

For example, a reduced tax burden on financiers provides focused monetary benefits and helps to effectively lower bond prices (provided that tax savings has a tangible effect on bond pricing and that the aforementioned would pass these tax savings to their respective clientele).

This could be applied in a number of applications from infrastructural investment to education or military spending.