Helping the government promote its policies

July 1, 2021

Governments around the world devote substantial resources to support small and medium sized firms struggling with the consequences of economic and financial crises. A key question is whether the firms that stand to benefit most from government programs—for example, smaller firms or those with limited access to traditional financing—face information frictions that hamper access to aid.

This paper tests whether informational frictions prevent firms from accessing government support measures. The paper considers the impact of providing detailed information on two COVID-19 assistance measures—a layoff support program and a guaranteed credit line scheme—on firm take-up using a sample of over 170,000 Portuguese firms (see figure). The exercise randomly assigned firms to an information treatment providing either simplified information regarding one of the assistance measures (including a short program description, eligibility criteria, and a link to official government resources), or a combination of information and step-by-step application support.

 

Figure: Simplified information on a layoff assistance program offered to a random sample of firms.

The paper finds evidence that the low-cost intervention had a meaningful impact on firm application for the layoff support program. Firms provided with information about the layoff support program were 2-3 percentage points more likely to submit applications (relative to a mean of just over 30 percent). This increase in applications coincided with the timing of the treatment (April 2020).

The results also suggest that the impact is not homogeneous across the measures. Firms supplied with equivalent information about the credit guarantee program, a more complex scheme that required borrowers to individually arrange terms with a bank, were no more likely to apply. The layoff intervention had a greater impact on firms that either faced greater information frictions or stood to benefit most from enrolling. In particular, the effect of information provision on application to the layoff support measure is concentrated in (i) smaller firms, (ii) those with less cash, (iii) those with more leverage, and (iv) those with a large number of employees relative to assets. The results indicate that information frictions act as a meaningful barrier to distribution of firm-level government support measures.

Click here to go to the paper by Cláudia Custódio, Christopher Hansman, and DiogoMendes.