Banu Demir, Beata Javorcik, Tomasz K. Michalski, Evren Örs, 29 October 2020

Firm-level interconnections have important implications for the propagation of economic shocks and the effectiveness of government policy. This column analyses the effect of a tax policy change on firm-level production chains and performance. Using granular administrative data, it shows that unexpected and non-localised supply shocks propagate downstream through production networks, affecting sales, input usage, and buyer and supplier linkages. In addition, it shows that the effects are amplified in firms facing financial constraints, highlighting the importance of liquidity in the resilience to shocks. 

Philippe Aghion, Antonin Bergeaud, Gilbert Cette, Rémy Lecat, Helene Maghin, 13 September 2019

The impact of access to credit on productivity is not as straightforward as it seems.This column introduces a model that emphasises the coexistence of two opposing effects. Tighter access to credit makes it more difficult for entrepreneurs to invest and innovate, with detrimental long-run effects on productivity. But it also drives less efficient incumbent firms out of the market, easing the entry of new and potentially more efficient innovators. Combining these two opposite effects, the overall relationship between credit access and productivity takes the shape of an inverted-U.

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