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Assisting Firms during a Crisis: Benefits and Costs

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  • Larry D. Wall

Abstract

Public and private efforts to reduce COVID-19 infection levels have led to a sharp drop in economic activity around the world. In an attempt to mitigate the damage to businesses, governments around the world have implemented a variety of financial programs to help firms. These programs have been criticized as interfering with markets, providing bailouts, and creating adverse incentives. In this article, I review both the rationale for government-provided assistance and the costs of providing that assistance from the perspective of how that aid effects the likely level and volatility of economic growth. The conclusion of this article is as a part of their decision making, policymakers should weigh both the intended and unintended consequences of such aid on the economy when deciding whether, what type of, and how much assistance should be provided.

Suggested Citation

  • Larry D. Wall, 2020. "Assisting Firms during a Crisis: Benefits and Costs," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2020(10), pages 1-18, August.
    • Handle: RePEc:fip:a00068:99118
    DOI: 10.29338/ph2020-10
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    References listed on IDEAS

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    1. Aaron Flaaen & Matthew D. Shapiro & Isaac Sorkin, 2019. "Reconsidering the Consequences of Worker Displacements: Firm versus Worker Perspective," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(2), pages 193-227, April.
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    4. Deborah Lucas, 2019. "Measuring the Cost of Bailouts," Annual Review of Financial Economics, Annual Reviews, vol. 11(1), pages 85-108, December.
    5. Brunnermeier, Markus & Krishnamurthy, Arvind, 2020. "Corporate Debt Overhang and Credit Policy," Research Papers 3876, Stanford University, Graduate School of Business.
    6. Ryan Niladri Banerjee & Boris Hofmann, 2018. "The rise of zombie firms: causes and consequences," BIS Quarterly Review, Bank for International Settlements, September.
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    More about this item

    Keywords

    corporate financial policy; layoffs; government bailouts; COVID-19;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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