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Zombification of the economy? Assessing the effectiveness of French government support during COVID-19 lockdown

Author

Listed:
  • Guerini, Mattia
  • Nesta, Lionel
  • Ragot, Xavier
  • Schiavo, Stefano

Abstract

This paper evaluates the risk of zombification of the French economy during the COVID-19 pandemic crisis, as a result of the unconditional financial support provided to firms by public authorities, to limit the impact of lockdown measures. We develop a simple theoretical framework based on a partial-equilibrium model to simulate the liquidity and solvency stress faced by a large panel of French firms and assess the impact of government support. Simulation results suggest that those policies helped healthy but illiquid firms to withstand the shock caused by the pandemic. Moreover, the analysis finds no evidence of a “zombification effect”, as less productive companies did not disproportionately benefit from government support.

Suggested Citation

  • Guerini, Mattia & Nesta, Lionel & Ragot, Xavier & Schiavo, Stefano, 2024. "Zombification of the economy? Assessing the effectiveness of French government support during COVID-19 lockdown," Journal of Economic Behavior & Organization, Elsevier, vol. 218(C), pages 263-280.
    • Handle: RePEc:eee:jeborg:v:218:y:2024:i:c:p:263-280
    DOI: 10.1016/j.jebo.2023.12.013
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    More about this item

    Keywords

    COVID-19; Zombie firms; Job-retention schemes; Microsimulation; Policy evaluation;
    All these keywords.

    JEL classification:

    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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