The Impact of Firm-level Covid Rescue Policies: Evidence for Wallonia

This paper evaluates the impact of Covid-19 support measures on firms in Wallonia. Using a rich set of administrative data, we analyze the allocation and effects of firm-level subsidies implemented in 2020–2021 in response to the pandemic. We find that support programs were taken up by mostly small, young firms, and in sectors most affected by lockdowns, such as retail, food services, and construction. We find no evidence of misallocation of resources towards ’zombie firms’, firms which tend to not contribute value added to the economy. Firms that received support experienced an 8–9% increase in labor productivity relative to firms that applied for, but did not obtain support. The impact on firm productivity persists at least one year after support. Moreover, receipt of support is associated with a 19% reduction in the likelihood of firm exit. These findings suggest that the support measures were effective in maintaining economic activity and avoiding mass firm failures during the crisis. These results are also consistent with findings for Flanders, reinforcing the evidence base for the design of crisis-response policies