Small business under the Covid-19 crisis: expected short- and medium-run effects of anti-contagion and economic policies

During the coronavirus disease (Covid-19) crisis, governments around the world have implemented large-scale anti-contagion policies to contain the spread of the SARS-CoV-2 virus in combination with a series of economic policies to mitigate the economic damage, such as the provision of subsidies. In this study, we evaluate the short-run trade-off between the epidemiological and economic goals as well as the potential medium-run benefits of the anti-contagion and economic policies using a survey on Japanese small business managers' expectations about the pandemic, policies, and firm performance. We find three main results. First, Japan's anti-contagion policy, the unenforceable state of emergency declaration, decreased year-on-year sales by 5 percentage points in April 2020 compared to March. Firms' expectations significantly improved in the week that the emergency state was partially lifted and the government announced clear guidelines for lifting the emergency state. Second, we find that simple lump-sum government benefits improved firms' prospects for survival by exploiting a discontinuity in the eligibility criteria. However, firms did not yet expect to use short-time work compensation, which requires additional review, time, and costs. Third, managers expected the medium-run recovery of their firms' performance to depend on when infections would end and whether the Olympic Games could be held, indicating that stringent short-run anti-contagion policies could complement the longer-run economic goal. This study contributes to the policy debate about the optimal economic and epidemiological policies under the pandemic by quantifying the key effects of the policies.