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Credit Guarantees, Firm Response, and Macroeconomics

Author

Listed:
  • Yasin Kürsat Önder
  • Jose Villagas

Abstract

We evaluate the impact of Belgium’s 2020 Public Credit Guarantee Scheme (CGS) using administrative data. The CGS applied to all firms, with those employing fewer than 50 workers benefiting from a 25 basis point reduction in interest rates. Leveraging this policy-induced discontinuity, we compare firms around the employment threshold. Firms receiving the lower interest rates experienced increases in employment and investment, along with a reduction in firm exit rates. The scheme helped address the debt overhang problem by easing pricerelated credit constraints: for every €1 of guaranteed debt at a 25 basis points lower rate, non-guaranteed debt decreased by €0.13.

Suggested Citation

  • Yasin Kürsat Önder & Jose Villagas, 2024. "Credit Guarantees, Firm Response, and Macroeconomics," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 24/1097, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:24/1097
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    File URL: http://wps-feb.ugent.be/Papers/wp_24_1097.pdf
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    References listed on IDEAS

    as
    1. Abhijit V. Banerjee & Esther Duflo, 2014. "Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(2), pages 572-607.
    2. Matias D. Cattaneo & Nicolas Idrobo & Rocio Titiunik, 2019. "A Practical Introduction to Regression Discontinuity Designs: Foundations," Papers 1911.09511, arXiv.org.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Credit guarantees; credit frictions; regression discontinuity design; debt overhang squares; efficiency; robustness;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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