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The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did It Go There?

Author

Listed:
  • David Autor
  • David Cho
  • Leland D. Crane
  • Mita Goldar
  • Byron Lutz
  • Joshua Montes
  • William B. Peterman
  • David Ratner
  • Daniel Villar
  • Ahu Yildirmaz

Abstract

The Paycheck Protection Program (PPP) provided small businesses with roughly $800 billion dollars in uncollateralized, low-interest loans during the pandemic, almost all of which will be forgiven. With 94 percent of small businesses ultimately receiving one or more loans, the PPP nearly saturated its market in just two months. We estimate that the program cumulatively preserved between 2 and 3 million job-years of employment over 14 months at a cost of $169K to $258K per job-year retained. These numbers imply that only 23 to 34 percent of PPP dollars went directly to workers who would otherwise have lost jobs; the balance flowed to business owners and shareholders, including creditors and suppliers of PPP-receiving firms. Program incidence was ultimately highly regressive, with about three-quarters of PPP funds accruing to the top quintile of households. PPP's breakneck scale-up, its high cost per job saved, and its regressive incidence have a common origin: PPP was essentially untargeted because the United States lacked the administrative infrastructure to do otherwise. Harnessing modern administrative systems, other high-income countries were able to better target pandemic business aid to firms in financial distress. Building similar capacity in the U.S. would enable improved targeting when the next pandemic or other large-scale economic emergency inevitably arises.

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  • David Autor & David Cho & Leland D. Crane & Mita Goldar & Byron Lutz & Joshua Montes & William B. Peterman & David Ratner & Daniel Villar & Ahu Yildirmaz, 2022. "The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did It Go There?," Journal of Economic Perspectives, American Economic Association, vol. 36(2), pages 55-80, Spring.
  • Handle: RePEc:aea:jecper:v:36:y:2022:i:2:p:55-80
    DOI: 10.1257/jep.36.2.55
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    14. repec:aei:rpaper:1008582843 is not listed on IDEAS
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    Cited by:

    1. Alessandro Di Nola & Leo Kaas & Haomin Wang, 2023. "Rescue policies for small businesses in the Covid-19 recession," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 579-603, December.
    2. Larrimore, Jeff & Mortenson, Jacob & Splinter, David, 2023. "Earnings business cycles: The Covid recession, recovery, and policy response," Journal of Public Economics, Elsevier, vol. 225(C).
    3. Alessandro Di Nola & Leo Kaas & Haomin Wang, 2023. "Rescue policies for small businesses in the Covid-19 recession," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 579-603, December.
    4. Herzog-Stein, Alexander & Nüß, Patrick & Peede, Lennert & Stein, Ulrike, 2022. "Germany and the United States in coronavirus distress: internal versus external labour market flexibility," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 56, pages 1-11.
    5. Aaron Pacitti & Michael Cauvel, 2023. "Rent-Seeking Behavior and Economic Justice: A Classroom Exercise," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 49(1), pages 88-103, January.
    6. 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.
    7. Timothy Watson & Paul Buckingham, 2023. "Australian Government COVID‐19 Business Supports," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(1), pages 124-140, March.
    8. Wei Cui & Jeffrey Hicks & Max Norton, 2022. "How well-targeted are payroll tax cuts as a response to COVID-19? evidence from China," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(5), pages 1321-1347, October.
    9. Adermon, Adrian & Laun, Lisa & Lind, Patrik & Olsson, Martin & Sauermann, Jan & Sjögren , Anna, 2022. "Earnings losses and the role of the welfare state during the COVID-19 pandemic: evidence from Sweden," Working Paper Series 2022:20, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    10. Thomas Blanchet & Emmanuel Saez & Gabriel Zucman, 2022. "Real-Time Inequality," NBER Working Papers 30229, National Bureau of Economic Research, Inc.
    11. Masayuki Morikawa, 2023. "Productivity and wages of firms using COVID‐19‐related support policies," Social Science Quarterly, Southwestern Social Science Association, vol. 104(3), pages 202-213, May.
    12. Salomé Baslandze & Camelia Minoiu & Veronika Penciakova & Jonathan L. Willis, 2023. "Do Credit Supply Shocks Constrain Employment Growth of Small and Medium-Sized Enterprises?," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2023(5), September.
    13. Aaron J. Staples & Thomas P. Krumel, 2023. "The Paycheck Protection Program and small business performance: Evidence from craft breweries," Small Business Economics, Springer, vol. 61(3), pages 931-956, October.
    14. Autor, David & Cho, David & Crane, Leland D. & Goldar, Mita & Lutz, Byron & Montes, Joshua & Peterman, William B. & Ratner, David & Villar, Daniel & Yildirmaz, Ahu, 2022. "An evaluation of the Paycheck Protection Program using administrative payroll microdata," Journal of Public Economics, Elsevier, vol. 211(C).
    15. Marvin Phaup, 2022. "Federal budget process reform: An economics perspective, with imperfect, “Human” decision‐makers," Public Budgeting & Finance, Wiley Blackwell, vol. 42(3), pages 114-130, September.
    16. Jeff Borland & Jennifer Hunt, 2023. "JobKeeper: An Initial Assessment," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(1), pages 109-123, March.
    17. Lily Davies & Mark Kattenberg & Benedikt Vogt, 2023. "Predicting Firm Exits with Machine Learning: Implications for Selection into COVID-19 Support and Productivity Growth," CPB Discussion Paper 444, CPB Netherlands Bureau for Economic Policy Analysis.

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    More about this item

    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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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