Access to Liquidity in a Financial Crisis

53 Pages Posted: 8 Oct 2014 Last revised: 18 Sep 2019

See all articles by James R. Brown

James R. Brown

Iowa State University - Department of Finance

Gustav Martinsson

Royal Institute of Technology (KTH) - Department of Industrial Economics and Management (INDEK); Stockholm School of Economics - Stockholm School of Economics - Swedish House of Finance, Students; Institute for Financial Research (SIFR)

Christian Thomann

Kungl Tekniska Hogskolan

Multiple version iconThere are 2 versions of this paper

Date Written: September 16, 2019

Abstract

At the height of the financial crisis, Sweden allowed firms to suspend payment of labor-related taxes and fees, treating deferred amounts as a loan from the government. We evaluate the effects of the policy, exploiting a feature that caused sharp cross-firm differences in the amount of liquidity it offered. We link the tax deferment policy with higher rates of leverage and real investment spending, and reductions in the marginal revenue product of capital. The policy is also associated with faster sales and employment growth in the post-crisis period. Policy efforts narrowly targeting transitory liquidity needs can have economically important effects.

Keywords: Liquidity, Financial crisis, Government policy, Real activity

JEL Classification: G01, G18, G32, L26

Suggested Citation

Brown, James R. and Martinsson, Gustav and Thomann, Christian, Access to Liquidity in a Financial Crisis (September 16, 2019). Available at SSRN: https://ssrn.com/abstract=2506694 or http://dx.doi.org/10.2139/ssrn.2506694

James R. Brown

Iowa State University - Department of Finance ( email )

Ivy College of Business
Ames, IA 50011
United States
5152944668 (Phone)

Gustav Martinsson (Contact Author)

Royal Institute of Technology (KTH) - Department of Industrial Economics and Management (INDEK) ( email )

Stockholm, 100 44
Sweden

HOME PAGE: http://https://www.kth.se/profile/gusma

Stockholm School of Economics - Stockholm School of Economics - Swedish House of Finance, Students ( email )

111 60 Stockholm
Sweden

Institute for Financial Research (SIFR) ( email )

Drottninggatan 89
SE-113 59 Stockholm, SE-113 60
Sweden

Christian Thomann

Kungl Tekniska Hogskolan ( email )

SE-10044 Stockholm
United States

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