With a Little Help from My Friend: Political Connections and Allocation of COVID-19 Aid

The paper studies the role of political connections in allocating COVID-19 support programs. Using Enterprise Survey (BEEPS) data and the corresponding COVID follow-up survey rounds, covering nearly 12,000 firms from 30 countries, the study shows that firms' political connection status does not affect the overall propensity to receive government support. However, results are heterogeneous and depend on the program type. Politically connected firms have a higher propensity (3.6 percentage points) to get direct cash transfers than those without such connections; the effect is muted for other programs, such as credit payment deferral, access to new credit, fiscal exemption, and wage subsidy. Political bias in distributing cash transfers was only observed during the first few months of the COVID-19 pandemic when the rules of government programs still needed to be set, and the eligibility criteria were not defined. The paper provides evidence that political bias may also lead to resource misallocation. The results show that the value of political connections is much larger among firms that did not experience any negative shock during the pandemic; political connection compensates firms' non-eligibility status and allows them to access cash transfers. Lastly, the value of political connections does not vary much and is equally observed in different institutional contexts.