Study Overview
We use a randomized controlled trial to examine the impact of a government-backed loan program for small businesses in Chile during the COVID pandemic.
Study Results
Exploiting neighborhood-level variation in lockdowns over time—which we show have significant effects on firms’ cash flows—combined with randomized variation in whether firms were offered loans and employer-employee linked administrative data, we find large effects of loans on employment for firms experiencing cash flow shocks. Firms not experiencing a cash flow shock due to their neighborhood not being in lockdown typically did not lay off workers regardless of whether they received an offer for a government-backed loan. However, firms experiencing a cash flow shock in the control group (i.e., received no loan offer) laid off workers. In contrast, firms in the treatment group did not lay off workers when experiencing a cash flow shock. Aggregating our RCT results to the macroeconomy, we estimate that Chile’s government-backed small business loan program reduced unemployment by 1.2 percentage points as of February 2021 when the unemployment rate was 10.3%. We also estimate that the cost to the government per job saved was US$488.5.
Populations: Small and medium enterprises (SME)
IBSI Funding Acknowledgement: Lab for Inclusive FinTech (LIFT)