The sudden onset of the pandemic severely damaged the economy due to lockdowns and disruptions in production and supply chains. It is well known that governments reacted quickly, with huge support mechanisms for workers and companies. Although these interventions were well received by the population, the stimuli increased public debt and may constrain future policies. This is especially problematic in southern European countries that have historically been accumulating high public debt and suffer from slow growth.

Mircea Epure, a Serra Húnter Associate Professor at the Department of Economics and Business at Pompeu Fabra University, will lead the project “Comparative Analysis of the Effectiveness of COVID-19 Policies” (COMPVID), which will evaluate the cost and effectiveness of relief mechanisms implemented in countries such as Spain, Italy, France and Germany, following the emergence of COVID-19 in 2020.

Mircea Epure: “Since our project will use economy-level data, we will identify the micro effects that aggregate to macro-welfare aspects, such as economic growth, public spending and unemployment.”

The project, which is set to run over the next two years, is funded under the 2021 call for Social Research by the “la Caixa” Foundation, and is endowed with nearly 100,000 euros. Mircea Epure will be the principal investigator of the project, whose research team comprises Amedeo Pugliese (a visiting professor at the UPF Department of Economics and Business, and affiliated to the University of Padua), and Stefano Cascino (London School of Economics).

An innovative project that combines micro and macroeconomic data

The research led by Mircea Epure is timely and innovative in combining a granular econometric approach with a comparative analysis of changes in accounting rules and their effects on the behaviour of companies and the economy in general. “Analyses are often built around imaginary counterfactuals and thus may lack external validity and fail to apply to the real world.” Since our project will use economy-level data, we will identify micro effects that aggregate to macro-welfare aspects, such as economic growth, public spending and unemployment”, Mircea Epure explains.

The project will evaluate the effectiveness and the desired and unintended consequences of relief mechanisms that involve changes in accounting regulations. These consequences are closely linked to economic welfare, as the best-known policy initiatives to try to reinstate liquidity are extraordinary furlough such as the temporary employment regulation (ERTE, in Spain); publicly guaranteed credit to cash-constrained firms (Spain and Italy); and even equity injections (France and Germany).

Three research questions to pursue

First, the project will compare the effects of support mechanisms for corporate liquidity to those targeting profitability or equity replenishment. Second, it will narrow down on the effects of changes in accounting regulation in terms of the transparency and usefulness of financial information for stakeholders with a central role in the economy, such as debt-holders and the State.

Finally, it will examine the impact of changes in accounting regulations on the “corporate debt legacy.” By focusing on the redistribution of resources in society, and identifying companies with different financial reporting quality, it will assess whether government-guaranteed liquidity may have spurred “zombie lending” by misallocating good resources to bad firms.

An call promoting socially oriented projects

The last edition of the Social Research Call by the “la Caixa” Foundation selected 17 research projects (including the one by Mircea Epure), out of a total of 528 proposals received. They will be funded with grants of up to 100,000 euros, and will run for 24 months.

These projects stand out for their excellence, innovative character and social orientation, generate new knowledge and help to understand the most relevant social challenges using quantitative methodologies. The call targets researchers of all nationalities who carry out their research at universities and research centres in Spain and Portugal.