Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322341 
Year of Publication: 
2025
Series/Report no.: 
NBB Working Paper No. 473
Publisher: 
National Bank of Belgium, Brussels
Abstract: 
Policies supporting small businesses are popular among policymakers but often criticised by economists for their potential to distort the economy. This paper provides a comprehensive evaluation of a unique policy that subsidises the first employee. Empirically, we find that the policy led to a surge in the number of firms employing exactly one employee, without a noticeable effect on the number of firms with two or more employees. A simple frictionless general equilibrium model of occupational choices predicts the empirical facts remarkably well. Leveraging our model, we show that the general equilibrium effects on wages and aggregate output are likely to be small. However, the policy is expensive. Our findings support the traditional view that size-dependent subsidies distort the optimal allocation of resources.
Subjects: 
size-dependent policies
firm entry
small firms
wage subsidies
payroll taxes
JEL: 
D22
H25
J08
L25
L26
Document Type: 
Working Paper

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