Crisis Credit, Employment Protection, Indebtedness, and Risk

Federico Huneeus, Joseph Kaboski, Mauricio Larrain, Sergio Schmukler and Mario Vera

No 10958, Policy Research Working Paper Series from The World Bank

Abstract: This paper studies how credit guarantee and employment protection programs interact in assisting firms during crises times. The paper analyzes how these government programs influence credit allocation, indebtedness, and risk at both the micro and macro levels. The programs provide different incentives for firms. The low interest rate encourages riskier firms to demand government-backed credit, while banks tend to reject those credit applications. The credit demand outweighs this screening supply response, expanding micro-level indebtedness across the extensive and intensive margins among riskier firms. The uptake of the employment program is not associated with risk, as firms internalize the opportunity cost of reduced operations when sending workers home to qualify for assistance. The employment program mitigates the indebtedness expansion of the credit program by supporting firms and enabling banks to screen firms better. Macroeconomic risk of the credit program would increase by a third without the availability of the employment program.

Date: 2024-10-24
New Economics Papers: this item is included in nep-rmg
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://documents.worldbank.org/curated/en/0995560 ... 56b-1a846355f2a7.pdf (application/pdf)

Related works:
Working Paper: Crisis Credit, Employment Protection, Indebtedness, and Risk (2025)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:10958

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().