Part of the series :
Governments across Europe provided unprecedented policy support, in response to the COVID-19 pandemic, to help businesses survive and to forestall unnecessary layoffs or bankruptcies, and a greater economic decline. Using firm-level data, this paper assesses the efficiency and effectiveness of this government support, taking Slovakia as an example.
It finds that the support provided was successful in saving significant numbers of jobs and sustaining activity. Moreover, the distribution of subsidies was surprisingly efficient, prioritising relatively more productive, and foreign-demand oriented firms, while “zombie firms” and those with a higher environmental footprint had a relatively lower chance of obtaining government funding.
The paper also shows that the pandemic undermined firm profits and significantly increased the share of illiquid and insolvent firms. Government wage subsidies somewhat mitigated firm losses, but the effect was relatively small compared to the size of the economic shock. It also confirms that larger firms which received less support relative to their size, have had greater capacity to cover their additional liquidity needs by increasing trade liabilities or liabilities to affiliated entities, while SMEs face a higher risk of insolvency.