Does Size Matter? The Real Effects of Subsidizing Small Firms

54 Pages Posted: 10 Sep 2019 Last revised: 26 Sep 2021

See all articles by Matthew Denes

Matthew Denes

Carnegie Mellon University - Tepper School of Business

Ran Duchin

Boston College - Carroll School of Management

John Hackney

University of South Carolina - Department of Finance

Date Written: September 24, 2021

Abstract

Size standards determine small firms’ eligibility for U.S. government subsidies. We estimate the economic effects of access to these subsidies by exploiting randomness in the timing of size standard changes across industries surrounding the Small Business Jobs Act of 2010. We find that size standards have increased considerably over the past decade, leading to the crowding out of the smallest firms, as reflected by lower shares of small businesses in employment and payroll. Consequently, overall employment growth decreases, wages drop, and displaced workers become unemployed. We provide micro-level evidence on subsidy reallocation to larger firms in procurement and loan programs.

Keywords: government subsidies, small firms, employment, procurement

JEL Classification: E24, G38, H25, H57, L25

Suggested Citation

Denes, Matthew and Duchin, Ran and Hackney, John, Does Size Matter? The Real Effects of Subsidizing Small Firms (September 24, 2021). Available at SSRN: https://ssrn.com/abstract=3451424 or http://dx.doi.org/10.2139/ssrn.3451424

Matthew Denes (Contact Author)

Carnegie Mellon University - Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

HOME PAGE: http://sites.google.com/site/matthewdenes

Ran Duchin

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

John Hackney

University of South Carolina - Department of Finance ( email )

1014 Greene Street
Columbia, SC 29208
United States

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