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Did the Paycheck Protection Program have negative side effects on small-business activity?

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  • Kapinos, Pavel

Abstract

This note uses the U.S. county-level data to show the strong negative, albeit short-lived side-effects of the Paycheck Protection Program (PPP). The PPP targeted small businesses’ maintaining their payroll and salary levels through the early phases of the COVID-19 contraction. The recent literature finds, likely demand driven, positive effects of the PPP. Using the Opportunity Insight Economic Tracker data on open small businesses and small business revenue, this note finds that counties with relatively large exposures to the PPP experienced significant, short-lived declines in those measure. I interpret those as supply driven, potentially intentionally designed given the nature of the pandemic. County-level mean PPP exposure measured by the PPP loan to total assets ratio was 1.83 percent. A one percentage point of exposure to PPP loans to total assets ratio reduced the number of open small businesses by about 4 percent and small business revenue by 7 percent by June 2020 relative to their January 2020 baseline levels.

Suggested Citation

  • Kapinos, Pavel, 2021. "Did the Paycheck Protection Program have negative side effects on small-business activity?," Economics Letters, Elsevier, vol. 208(C).
    • Handle: RePEc:eee:ecolet:v:208:y:2021:i:c:s0165176521003220
    DOI: 10.1016/j.econlet.2021.110045
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    References listed on IDEAS

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    1. Pavel Kapinos, 2021. "Paycheck Protection Program: County-Level Determinants and Effect on Unemployment," Working Papers 2105, Federal Reserve Bank of Dallas.
    2. Glenn Hubbard & Michael R. Strain, 2020. "Has the Paycheck Protection Program Succeeded?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 51(3 (Fall)), pages 335-390.
    3. 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.
    4. Cynthia L. Doniger & Benjamin S. Kay, 2021. "Ten Days Late and Billions of Dollars Short: The Employment Effects of Delays in Paycheck Protection Program Financing," Finance and Economics Discussion Series 2021-003, Board of Governors of the Federal Reserve System (U.S.).
    5. Òscar Jordà, 2005. "Estimation and Inference of Impulse Responses by Local Projections," American Economic Review, American Economic Association, vol. 95(1), pages 161-182, March.
    6. Alexander W. Bartik & Marianne Bertrand & Feng Lin & Jesse Rothstein & Matthew Unrath, 2020. "Measuring the Labor Market at the Onset of the COVID-19 Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 51(2 (Summer), pages 239-268;316.
    7. Raj Chetty & John N. Friedman & Michael Stepner & The Opportunity Insights Team, 2020. "The Economic Impacts of COVID-19: Evidence from a New Public Database Built Using Private Sector Data," NBER Working Papers 27431, National Bureau of Economic Research, Inc.
    8. repec:aei:rpaper:1008582843 is not listed on IDEAS
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    Cited by:

    1. Harasztosi, Péter & Maurin, Laurent & Pál, Rozália & Revoltella, Debora & van der Wielen, Wouter, 2022. "Firm-level policy support during the crisis: So far, so good?," International Economics, Elsevier, vol. 171(C), pages 30-48.

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    More about this item

    Keywords

    COVID-19 pandemic; Paycheck Protection Program; Local projections; Small business activity;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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