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Allocation and Employment Effect of the Paycheck Protection Program

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Abstract

The Paycheck Protection Program (PPP) was a large and unprecedented small-business support program enacted as a response to the COVID-19 crisis in the United States. The PPP administered almost $800 billion in loans and grants to small businesses through the banking system. However, there is still limited consensus on its overall effect on employment. This paper explores why it is challenging to estimate the effect of the PPP. To do so, we first focus on the timing of the allocation of PPP funds across regions and firms. Counties less affected by COVID-19 and with a larger presence of community banks, as well as larger firms, received loans earlier in the program. This differential timing observed in the data suggests that the current estimates of the effect of the PPP are not representative of the overall effect of the program. We qualitatively reconcile some of the conflicting results in the empirical literature and point to key questions surrounding the program.

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  • Gustavo Joaquim, 2021. "Allocation and Employment Effect of the Paycheck Protection Program," Current Policy Perspectives 93541, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbcq:93541
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    References listed on IDEAS

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    1. Granja, João & Makridis, Christos & Yannelis, Constantine & Zwick, Eric, 2022. "Did the paycheck protection program hit the target?," Journal of Financial Economics, Elsevier, vol. 145(3), pages 725-761.
    2. Cynthia L. Doniger & Benjamin S. Kay, 2021. "Ten Days Late and Billions of Dollars Short: The Employment Effects of Delays in Paycheck Protection Program Financing," Finance and Economics Discussion Series 2021-003, Board of Governors of the Federal Reserve System (U.S.).
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    More about this item

    Keywords

    Paycheck Protection Program; COVID-19; small business lending; financial frictions;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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