This paper studies how credit guarantee and employment protection programs interact in assisting firms during crises times. The paper analyzes how these government programs influence credit allocation, indebtedness, and risk at both the micro and macro levels. The programs provide different incentives for firms. The low interest rate encourages riskier firms to demand government-backed credit, while banks tend to reject those credit applications. The credit demand outweighs this screening supply response, expanding micro-level indebtedness across the extensive and intensive margins among riskier firms. The uptake of the employment program is not associated with risk, as firms internalize the opportunity cost of reduced operations when sending workers home to qualify for assistance. The employment program mitigates the indebtedness expansion of the credit program by supporting firms and enabling banks to screen firms better. Macroeconomic risk of the credit program would increase by a third without the availability of the employment program.
Authors
Huneeus, Federico, Kaboski, Joseph P., Larrain, Mauricio, Schmukler, Sergio L., Vera, Mario
- Citation
- “ Huneeus, Federico ; Kaboski, Joseph P. ; Larrain, Mauricio ; Schmukler, Sergio L. ; Vera, Mario . 2024 . Crisis Credit, Employment Protection, Indebtedness, and Risk . Policy Research Working Paper; 10958 . © Washington, DC: World Bank . http://hdl.handle.net/10986/42301 License: CC BY 3.0 IGO . ”
- Collection(s)
- Policy Research Working Papers
- DOI
- http://dx.doi.org/10.1596/1813-9450-10958
- Identifier externaldocumentum
- 34411082
- Identifier internaldocumentum
- 34411082
- Pages
- 70
- Published in
- United States of America
- RelationisPartofseries
- Policy Research Working Paper; 10958
- Report
- WPS10958
- Rights
- CC BY 3.0 IGO
- Rights Holder
- World Bank
- Rights URI
- https://creativecommons.org/licenses/by/3.0/igo/
- UNIT
- DCRCL
- URI
- https://hdl.handle.net/10986/42301
- date disclosure
- 2024-10-25
- region geographical
- World
Files
Table of Contents
- Introduction 4
- Government Crisis Credit and Employment Programs 9
- Data 12
- Credit Distribution across Firms 14
- Measuring Firm Risk 14
- Selection into the Government Programs 16
- Selection Based on Firm Growth: Evidence from Dynamic Lockdowns 19
- Effects on Firm Indebtedness 20
- Aggregate Implications 23
- Aggregate Allocation, Expected Loss, and ex post Loss 23
- Risk Sharing between Banks and the Government 25
- How the Equilibrium Allocation and Policy Affect Aggregate Risk 25
- Conclusions 28
- Appendix Data Samples 34
- Appendix Regression Discontinuity Design Results 35
- Appendix From Firm to Aggregate Indebtedness 36
