Liquidity shortfalls during the COVID-19 outbreak: Assessment and policy responses
The paper investigates the financial vulnerability of non-financial firms during the
Coronavirus (COVID-19) epidemic crisis. In particular, it evaluates the extent to
which firms may run into a liquidity crisis following the COVID-19 outbreak and the
impact of stylised policy measures to reduce the risks and depth of such crisis. The
analysis relies on three ingredients: a simple accounting model, a large dataset reporting
firms’ balance sheets for 14 countries and granular data on the magnitude of the shock
measuring the impact of confinement measures on economic activity (notably depending
on the capacity of each sector to operate by teleworking). Results suggest that, without
any policy intervention, up to 38% of firms would face liquidity shortfalls after
10 months since the implementation of confinement measures. Comparing the impact of
different policies (tax deferral, debt moratorium and support to wage payments), the
analysis shows that government support to relieve wage bills is the most effective
tool to reduce liquidity shortages, followed by debt moratorium policies. Finally,
the paper zooms into labour market policies and compares the costefficiency of short-term
work and wage subsidies schemes, highlighting how their relative efficiency depends
on their design.
Published on January 22, 2021
In series:OECD Economics Department Working Papersview more titles