Working Paper: NBER ID: w28418
Authors: Pierre-Olivier Gourinchas; Ebnem Kalemlizcan; Veronika Penciakova; Nick Sander
Abstract: This paper assesses the prospects of a 2021 time bomb in SME failures triggered by the generous support policies enacted during the 2020 COVID-19 crisis. Policies implemented in 2020, on their own, do not create a 2021 “time-bomb” for SMEs. Rather, business failures and policy costs remain modest. By contrast, credit contraction poses significant risk. Such a contraction would disproportionately impact firms that could survive COVID-19 in 2020 without any fiscal support. Even in that scenario, most business failures would not arise from excessively generous 2020 policies, but rather from the contraction of credit to the corporate sector.
Keywords: COVID-19; SMEs; business failures; fiscal support; credit contraction
JEL Codes: D2; E65; G33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lack of credit availability (G21) | increased failures among firms that could have otherwise survived (G33) |
| withdrawal of fiscal support in 2021 (H69) | increased risk of failure (G33) |
| credit contraction (E51) | increased failure rates (G33) |
| excessive indebtedness and withdrawal of support (G33) | increased failure rates (G33) |