An Analysis of the Effects of the Severance Payment Reform on Credit to Italian SMEs

Journal of Financial Economic Policy, Vol. 3, No. 3, 2011

26 Pages Posted: 8 Nov 2008 Last revised: 22 Aug 2011

See all articles by Riccardo Calcagno

Riccardo Calcagno

Politecnico di Torino

Roman Kräussl

Luxembourg School of Finance; Hoover Institution, Stanford University

Chiara Monticone

Organization for Economic Co-Operation and Development (OECD)

Date Written: November 7, 2008

Abstract

We study the effects of the reform of the system of severance payments (TFR) of Italian employees on the cost and the access to credit for small and medium-size enterprises (SMEs). The most direct consequence of the reform is to reduce in the long run the amount of liquid assets available to Italian firms. We argue that this reform, implemented in July 2007, will reduce the aggregate investment by SMEs in a more than proportional way, since it will restrict the access to credit for some of them (Holmstrom and Tirole, 1997). However, we also predict that the reform will not increase the cost of intermediated finance, coeteris paribus. In order to assess the effects of the reform on the investment of SMEs and on the cost of bank loans, we also estimate the future outflows of TFR funds due to the reform.

Keywords: severance indemnities, moral hazard, credit constraints, SMEs

JEL Classification: G31, G32, G38

Suggested Citation

Calcagno, Riccardo and Kraeussl, Roman and Monticone, Chiara, An Analysis of the Effects of the Severance Payment Reform on Credit to Italian SMEs (November 7, 2008). Journal of Financial Economic Policy, Vol. 3, No. 3, 2011, Available at SSRN: https://ssrn.com/abstract=1297041

Riccardo Calcagno (Contact Author)

Politecnico di Torino ( email )

Corso Duca degli Abruzzi, 24
Torino, Torino 10129
Italy

Roman Kraeussl

Luxembourg School of Finance ( email )

4, rue Albert Borschette
Luxembourg, 1246
Luxembourg
+3524666445442 (Phone)

HOME PAGE: http://www.art-finance.com

Hoover Institution, Stanford University ( email )

Stanford, CA 94305
United States

Chiara Monticone

Organization for Economic Co-Operation and Development (OECD)

2 rue Andre Pascal
Paris Cedex 16, 75775
France

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