Daan Freeman, Leon Bettendorf, Yvonne Adema, 03 November 2021

As in most other countries, the government in the Netherlands implemented generous support measures for firms during the Covid-19 crisis. This column shows that unlike in other countries, however, government support disrupted the creative destruction process in the Netherlands by saving a disproportionately high number of low-productivity firms. The authors suggest this might be because the support measures were more widely and easily available. The speed of the phasing out will play an important role in determining how many firms that have been propped up fail once the support is removed or even has to be paid back.

Dan Andrews, Elif Bahar, Jonathan Hambur, 30 September 2021

Job retention schemes during the pandemic prioritised preservation over reallocation, but evidence on their allocative and productivity consequences is scarce. Using tax data for Australia, this column shows that job reallocation and firm exit remained connected to firm productivity over the course of the pandemic. Australia’s job retention scheme, JobKeeper, initially shielded productive and financially fragile firms, contributing positively to aggregate productivity. But as the economy recovered, the scheme grew more distortive, justifying its timely withdrawal – on productivity grounds at least.

Tommaso Bighelli, Tibor Lalinsky, Filippo di Mauro, 19 August 2021

Government support in response to the Covid-19 pandemic has raised concerns about the misallocation of public funds and the creation of ‘zombie’ firms. This column uses firm-level data from CompNet for four EU countries to show that Covid-19 support was distributed rather efficiently. Government subsidies were distributed towards medium productive firms, and only marginally towards the undeserving ‘zombies’. However, the negative impact of the pandemic on productivity growth was large and resource reallocation sluggish, which calls for a removal of the blanket as soon as the situation allows. 

Thorsten Beck, Jan Keil, 11 March 2021

Across the globe, economies have been hit hard and fast by COVID-19. This column explores the effect of the pandemic on US banks’ health and their ability to support the economy with lending, using a novel measure to gauge banks’ exposure to COVID-19 and lockdown measures. The findings suggest that banks are catching coronavirus, although the effect is not so obvious from bank balance sheets given the easing of regulatory requirements on loan classification and provisioning. Exposure to COVID has led to an increase in lending to support the economy, but driven by government support programmes, as well as a tightening in loan conditionality. 

Zsolt Darvas, 23 February 2010

The EU has used various means to support the crisis-hit countries of Central and Eastern Europe. This column argues that EU action has been an expression of solidarity in recognition of the EU's responsibility to the region. But EU institutions and governments have also contributed to the suffering of Central and Eastern European in the crisis by some actions – or through failures to act.

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