The Impact of Government Support on Firms’ Productivity during COVID-19

The paper investigates the effectiveness of government support measures provided for small and medium enterprises during the spread of COVID-19. On the one hand, government sup­port aimed at maintaining the economy during the pandemic helped companies survive in the short term, on the other hand, it could lead to distorting allocative effects in the long term (especially if support was mainly allocated to less productive firms). We apply a counterfactual impact evaluation method to quantify the effect of government support on the productivity of SMEs during COVID-19. We assess the effect of four groups of support measures: financial support, support for innovation, property or tax support, and other types of support. The resulting indicators are total factor productivity (TFP) of firms, calculated as the residuals of the estimated production function, and labor productivity. The analysis showed that, in general, government support offered during the COVID-19 crisis has had a positive impact on the productivity of firms. On average, initially more productive and younger firms were more likely to receive support – so, apparently, there was no distorting effect of support. Despite the fact that the effect of support was relatively small, it still did its part to contain the fall in aggregate productivity in 2020. The effect of support for innovation, as well as tax support, was especially high. The effect of subsidies and other financial measures was lower and more ambiguous, the effect of other measures was insignificant.