Access to Liquidity in a Financial Crisis
53 Pages Posted: 8 Oct 2014 Last revised: 18 Sep 2019
Date Written: September 16, 2019
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: Suggested Citation