Cross-country evidence on the allocation of COVID-19 government subsidies and consequences for productivity

Tommaso Bighelli; Tibor Lalinsky; Juuso Vanhala

doi:10.1016/j.jjie.2023.101246

Cross-country evidence on the allocation of COVID-19 government subsidies and consequences for productivity

J Jpn Int Econ. 2023 Jun:68:101246. doi: 10.1016/j.jjie.2023.101246. Epub 2023 Jan 22.

Authors

Tommaso Bighelli¹, Tibor Lalinsky², Juuso Vanhala³

Affiliations

¹ Halle Institute for Economic Research.
² National Bank of Slovakia.
³ Bank of Finland.

Abstract

We study the consequences of the Covid-19 pandemic and related policy support on productivity. We employ an extensive micro-distributed exercise to access otherwise unavailable individual data on firm performance and government subsidies. Our cross-country evidence for five EU countries shows that the pandemic led to a significant short-term decline in aggregate productivity and the direct support to firms had only a limited positive effect on productivity developments. A thorough comparative analysis of the distribution of employment and overall direct subsidies, considering separately also relative firm-level size of support and the probability of being supported, reveals ambiguous cross-country results related to the firm-level productivity and points to the decisive role of other firm characteristics.

Keywords: Covid-19; Cross-country analysis; Employment subsidies; Firm-level data; Government support; Productivity.