Pierre Olivier Gourinchas, Şebnem Kalemli-Özcan, Veronika Penciakova, and Nick Sander
Working Paper 2021-6
January 2021

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Abstract: This paper assesses the prospects of a 2021 time bomb in small and medium-sized enterprises (SME) failures triggered by the generous support policies enacted during the 2020 COVID-19 crisis. Policies implemented in 2020, on their own, do not create a 2021 time bomb for SMEs. Rather, business failures and policy costs remain modest. By contrast, credit contraction poses significant risk. Such a contraction would disproportionately affect firms that could have survived COVID-19 in 2020 without any fiscal support. Even in that scenario, most business failures would not arise from excessively generous 2020 policies but rather from the contraction of credit to the corporate sector.

JEL classification: L26, E32, M21

Key words: business formation, entrepreneurship, business dynamism, recessions


The authors thank their discussant Brent Neiman. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta, the Federal Reserve System, the Bank of Canada, or their staff. Any remaining errors are the authors' responsibility.

Please address questions regarding content to Pierre Olivier Gourinchas, University of California, Berkeley (also the National Bureau of Economic Research and the Center for Economic and Policy Research); ┼×ebnem Kalemli-Ö,özcan, University of Maryland (also NBER and CEPR); Veronika Penciakova, Federal Reserve Bank of Atlanta; or Nick Sander, Bank of Canada.

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