On the cleansing effect of recessions and government policy: Evidence from Covid-19

Nicholas Kozeniauskas, Pedro Moreira and Cezar Santos

European Economic Review, 2022, vol. 144, issue C

Abstract: Recessions can have a cleansing effect by encouraging the reallocation of resources from low-productivity firms towards higher-productivity ones. Whether this effect actually occurs is still debated. We contribute to answering this question by providing new evidence. Using a survey of firms matched with administrative data, we trace out the Covid-19 recession’s effects across the productivity distribution. Higher-productivity firms are found to have been more successful at maintaining employment, but there was not a rise in exit amongst lower-productivity firms. In line with the theory that support policies offset the cleansing effect of recessions, high-productivity firms are also found to have been less likely to take up government support.

Keywords: Firms; Productivity; Policies; Cleansing effect; Covid-19 (search for similar items in EconPapers)
JEL-codes: D22 E24 H81 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: On the Cleansing Effect of Recessions and Government Policy: Evidence from Covid-19 (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:144:y:2022:i:c:s0014292122000411

DOI: 10.1016/j.euroecorev.2022.104097

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