An Analysis of the Effects of the Severance Pay Reform on Credit to Italian SMEs
AbstractIn this paper we study the effects of the reform of the system of severance indemnities (TFR) currently in use for Italian employees on the cost and the access to credit for Italian small and medium-size enterprises (SMEs). The most direct consequence of the reform will be to reduce the amount of liquid assets available to Italian firms. We argue that this reform, which will produce its first effects in July 2007, will reduce the aggregate investment by SMEs in a more than proportional way in a long run, since it will restrict the access to credit for some of them (Holmstrom and Tirole, 1997). However, we also predict that the reform will not increase the cost of intermediated finance in the long run, coeteris paribus. Nonetheless, in the short-term, if the level of investment by firms can be considered as exogenous, the reform is likely to increase the cost of bank credit for SMEs. In order to perform quantitative estimates of the effect of the reform, we also estimate the future outflows of TFR from the balance sheet of the firms from data covering the whole population of Italian firms.
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Bibliographic InfoPaper provided by Center for Research on Pensions and Welfare Policies, Turin (Italy) in its series CeRP Working Papers with number 59.
Length: 26 pages
Date of creation: Apr 2007
Date of revision:
severance indemnities; moral hazard; credit constraints;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-24 (All new papers)
- NEP-BAN-2007-09-24 (Banking)
- NEP-EEC-2007-09-24 (European Economics)
- NEP-REG-2007-09-24 (Regulation)
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- Holzmann, Robert & Pouget, Yann & Vodopivec, Milan & Weber, Michael, 2011.
"Severance pay programs around the world : history, rationale, status, and reforms,"
Social Protection Discussion Papers
62726, The World Bank.
- Holzmann, Robert & Pouget, Yann & Vodopivec, Milan & Weber, Michael, 2011. "Severance Pay Programs around the World: History, Rationale, Status, and Reforms," IZA Discussion Papers 5731, Institute for the Study of Labor (IZA).
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