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Assessing the Payroll Protection Program: A Framework and Preliminary Results

Author

Listed:
  • John Barrios

    (University of Chicago - Booth School of Business)

  • Michael Minnis

    (University of Chicago - Booth School of Business)

  • William Minnis

    (Eastern Illinois University)

  • Joost Sijthoff

    (University of Chicago - Booth School of Business)

Abstract

We develop a simple model to predict requests for the Payroll Protection Program (PPP) and compare these predictions to the actual allocations. The model suggests the amount of requested funds could total $750 billion, though this is likely a high watermark conditional on several assumptions. The model also generates expectations by industry, state, and firm size, allowing us to assess model performance in the cross-section. The model performs reasonably well. Through the May 1 funding, the state-level cross-sectional model has an R2 of 99.3% and the average absolute prediction error across states is 6.4%. Interestingly, the prediction errors from the first funding round are significantly negatively correlated to the errors in the second funding round, revealing that the allocations were systematically different in the two rounds. Ultimately, the results suggest that the payroll-based model predicts PPP allocations well and that the funds were allocated as designed. One potential inference from these results is that critique about PPP allocations should be focused on program design rather than program execution. This analysis should be useful for subsequent studies assessing the performance of the PPP.

Suggested Citation

  • John Barrios & Michael Minnis & William Minnis & Joost Sijthoff, 2020. "Assessing the Payroll Protection Program: A Framework and Preliminary Results," Working Papers 2020-63, Becker Friedman Institute for Research In Economics.
  • Handle: RePEc:bfi:wpaper:2020-63
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    Cited by:

    1. Kristopher Deming & Stephan Weiler, 2023. "Banking Deserts and the Paycheck Protection Program," Economic Development Quarterly, , vol. 37(3), pages 259-276, August.
    2. Karakaplan, Mustafa U., 2021. "This time is really different: The multiplier effect of the Paycheck Protection Program (PPP) on small business bank loans," Journal of Banking & Finance, Elsevier, vol. 133(C).
    3. Xavier Cirera & Marcio Cruz & Elwyn Davies & Arti Grover & Leonardo Iacovone & Jose Ernesto Lopez Cordova & Denis Medvedev & Franklin Okechukwu Maduko & Gaurav Nayyar & Santiago Reyes Ortega & Jesica , 2021. "Policies to Support Businesses through the COVID-19 Shock: A Firm Level Perspective [Economic Uncertainty before and during the COVID-19 Pandemic]," The World Bank Research Observer, World Bank, vol. 36(1), pages 41-66.
    4. 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.
    5. Desi Volker, 2022. "The Paycheck Protection Program Liquidity Facility," Economic Policy Review, Federal Reserve Bank of New York, vol. 28(1), July.
    6. Hailey B. Ballew & Allison Nicoletti & Sarah B. Stuber, 2022. "The Effect of the Paycheck Protection Program and Financial Reporting Standards on Bank Risk-Taking," Management Science, INFORMS, vol. 68(3), pages 2363-2371, March.
    7. Gustavo Joaquim & J. Christina Wang, 2022. "What Do 25 Million Records of Small Businesses Say about the Effects of the PPP?," Working Papers 22-23, Federal Reserve Bank of Boston.
    8. Isil Erel & Jack Liebersohn, 2020. "Does FinTech Substitute for Banks? Evidence from the Paycheck Protection Program," NBER Working Papers 27659, National Bureau of Economic Research, Inc.
    9. Beggs, William & Harvison, Thuong, 2023. "Fraud and abuse in the paycheck protection program? Evidence from investment advisory firms," Journal of Banking & Finance, Elsevier, vol. 147(C).
    10. John Gallemore & Stephan Hollander & Martin Jacob, 2020. "Who CARES? Evidence on the Corporate Tax Provisions of the Coronavirus Aid, Relief, and Economic Security Act from SEC Filings," Working Papers 2020-81, Becker Friedman Institute for Research In Economics.
    11. Barbakadze, I., 2023. "With a Little Help from My Friend: Political Connections and Allocation of COVID-19 Aid," Cambridge Working Papers in Economics 2355, Faculty of Economics, University of Cambridge.
    12. Desi Volker, 2021. "COVID Response: The Paycheck Protection Program Liquidity Facility," Staff Reports 978, Federal Reserve Bank of New York.

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