  We develop a model of bailout stigma where accepting a bailout signals a
firm's balance-sheet weakness and worsens its funding prospect. To avoid
stigma, high-quality firms either withdraw from subsequent financing after
receiving bailouts or refuse bailouts altogether to send a favorable signal.
The former leads to a short-lived stimulation with a subsequent market freeze
even worse than if there were no bailouts. The latter revives the funding
market, albeit with delay, to the level achievable without any stigma, and
implements a constrained optimal outcome. A menu of multiple bailout programs
also compounds bailout stigma and worsens market freeze.
