TY  - UNPD
A1  - Di Nola, Alessandro
A1  - Kaas, Leo
A1  - Wang, Haomin
T1  - Rescue policies for small businesses in the COVID-19 recession
T2  - SAFE working paper ; No. 343
N2  - While the COVID-19 pandemic had a large and asymmetric impact on firms, many countries quickly enacted massive business rescue programs which are specifically targeted to smaller firms. Little is known about the effects of such policies on business entry and exit, factor reallocation, and macroeconomic outcomes. This paper builds a general equilibrium model with heterogeneous and financially constrained firms in order to evaluate the short- and long-term consequences of small firm rescue programs in a pandemic recession. We calibrate the stationary equilibrium and the pandemic shock to the U.S. economy, taking into account the factual Paycheck Protection Program (PPP) as a specific grant policy. We find that the policy has only a small impact on aggregate employment because (i) jobs are saved predominately in less productive firms that account for a small share of employment and (ii) the grant induces a reallocation of resources away from larger and less impacted firms. Much of this reallocation happens in the aftermath of the pandemic episode. While a universal grant reduces the firm exit rate substantially, a targeted policy is not only more cost-effective, it also largely prevents the creation of “zombie firms" whose survival is socially inefficient.
T3  - SAFE working paper - 343 
KW  - COVID-19
KW  - Heterogeneous Firms
KW  - Business Subsidies
KW  - Paycheck Protection Program
Y1  - 2022
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/64571
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-645717
UR  - https://ssrn.com/abstract=4064899
N1  - Alessandro Di Nola thanks the German Research Foundation (grant No. SCHO 1442/2) for financial support.
IS  - March 2022
PB  - SAFE
CY  - Frankfurt am Main
ER  -