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

Nicholas Kozeniauskas*, Pedro Moreira, Cezar Santos

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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.
Original languageEnglish
Article number104097
Number of pages23
JournalEuropean Economic Review
Volume144
DOIs
Publication statusPublished - May 2022

Keywords

  • Cleansing effect
  • Covid-19
  • Firms
  • Policies
  • Productivity

Fingerprint

Dive into the research topics of 'On the cleansing effect of recessions and government policy: evidence from Covid-19'. Together they form a unique fingerprint.

Cite this