Effects of COVID-19 related government response stringency and support policies: Evidence from European firms

Abstract

In this paper we employ survey information on more than 10,000 Southern and Eastern European firms to assess the effects of the COVID-19 related lockdown and government support policies on the business operations of enterprises. Our findings reveal considerable size- and sector-related heterogeneity, with small firms, and firms such as hotels and restaurants operating in the facilities sector reporting the largest losses in terms of sales when governments increase the strictness of confinement measures. Fixed effects regression estimates suggest that a complete lockdown results in an average year-on-year sales growth that is approximately 63 percentage points lower than it would be without any curtailment measures. The magnitude of the coefficient on year-on-year sales change for a complete lockdown is 14 percentage points higher for small compared to large enterprises. Furthermore, our results suggest that state aid in the form of deferral of payments or wage subsidies are associated with firms' firms' labor market and financial outcomes in times of crisis. For instance, deferrals of payments are linked to between 0.7 and 1.5 fewer layoffs per firm in the surveyed enterprises compared to other types of support.

Keywords: COVID-19; Firms; Government support policies; Lockdown.

Fig. 1

Changes in sales relative to the same month in the previous year, by month.

Fig. 2

Changes in sales relative to the same month in the previous year, by (a) country and (b) division. Notes: description of ISIC Codes can be found under https://unstats.un.org/unsd/classifications/Econ/ISIC.

Fig. 3

Changes in sales relative to the same month in the previous year, by firm size. Notes: firm size classifications according to the World Bank Enterprise Survey. Small firms employ less than 20 people, medium sized firms have 20–99 employees, and large firms have more than 100 full-time employees.

Fig. 4

Interaction Plot: Response Stringency. Notes: Figure plots predicted values of interaction effects using the average value of the stringency index (Table 2, columns (2) and (3)). Firm size classifications according to the World Bank Enterprise Survey. Small firms employ less than 20 people, medium sized firms have 20–99 employees, and large firms have more than 100 full-time employees. Classification of business sections according to ISIC Rev. 3.1. D: Manufacturing; F: Construction; G: Wholesale and retail trade; H: Hotels and restaurants; I: Transport, storage and communications; K: Real estate, renting and business activities, here: only computer and related activities, ISIC Rev. 3.1 72. Each point in the figure corresponds to one actual data point with the color based on their moderator value.

Fig. 5

Target effectiveness of public support by (a) division and (b) countries. Note: business division refers to the 2-digit level ISIC Rev. 3.1 Code. R refers to the Pearson correlation coefficient.

Fig. A.1

Evolution of the Oxford COVID-19 Government Response Tracker Stringency Index, $3/2020-2/2021$. Notes: Each colored solid line refers to the average monthly stringency index in one of our sampled countries. The black dashed line shows the pooled average monthly stringency index for all sampled countries. (For interpretation of the references to color in this figure legend, the reader is referred to the web version of this article.)