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Does government-backed lending prevent unemployment? An assessment of the Swiss COVID-19 lending program

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  • Daniel Kaufmann

Abstract

This paper identifies the effect of variation in government-backed loan supply on unemployment exploiting regional variation in the Swiss COVID-19 lending program. The rules of the program introduce variation in loan supply across Cantons. This variation helps disentangling supply from demand effects. Higher loan supply reduces unemployment. Increasing the volume by CHF 100,000 saves between 0.22 and 0.29 jobs. Therefore, loan supply has to expand by between CHF 344,800 and CHF 454,500 to save one job. Taking into account that some of the borrowers default, saving one job costs the government between CHF 39,700 and CHF 52,400 per year. These costs are somewhat lower than unemployment benefits associated with the median income.

Suggested Citation

  • Daniel Kaufmann, 2020. "Does government-backed lending prevent unemployment? An assessment of the Swiss COVID-19 lending program," IRENE Working Papers 20-10, IRENE Institute of Economic Research.
  • Handle: RePEc:irn:wpaper:20-10
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    File URL: https://www5.unine.ch/RePEc/ftp/irn/pdfs/WP20-10.pdf
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    References listed on IDEAS

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    1. repec:zbw:bofrdp:2019_007 is not listed on IDEAS
    2. Joost Bats & Tom Hudepohl, 2019. "Impact of targeted credit easing by the ECB: Bank-level evidence," DNB Working Papers 631, Netherlands Central Bank, Research Department.
    3. Emi Nakamura & J?n Steinsson, 2014. "Fiscal Stimulus in a Monetary Union: Evidence from US Regions," American Economic Review, American Economic Association, vol. 104(3), pages 753-792, March.
    4. MacKinnon, James G. & White, Halbert, 1985. "Some heteroskedasticity-consistent covariance matrix estimators with improved finite sample properties," Journal of Econometrics, Elsevier, vol. 29(3), pages 305-325, September.
    Full references (including those not matched with items on IDEAS)

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    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19 > Economic policy > Household support

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    Cited by:

    1. Karakaplan, Mustafa U., 2021. "This time is really different: The multiplier effect of the Paycheck Protection Program (PPP) on small business bank loans," Journal of Banking & Finance, Elsevier, vol. 133(C).
    2. Lucas Marc Fuhrer & Marc-Antoine Ramelet & Jörn Tenhofen, 2021. "Firms’ participation in the Swiss COVID-19 loan programme," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 157(1), pages 1-22, December.

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    More about this item

    Keywords

    Government-backed lending; targeted lending; unemployment; COVID-19;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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