Discussion Paper

Assisting Firms during a Crisis: Benefits and Costs


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.

Keywords: corporate financial policy; layoffs; government bailouts; COVID-19;

JEL Classification: G31; G32; G38; H25; J63;

https://doi.org/10.29338/wp2020-10

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Provider: Federal Reserve Bank of Atlanta

Part of Series: Policy Hub

Publication Date: 2020-08-10

Number: 2020-10