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An analysis of the effects of the severance payment reform on credit to Italian SMEs

Riccardo Calcagno (Department of Economics, Finance and Control, EM Lyon Business School, Ecully, France CeRP/Collegio Carlo Alberto, Torino, Italy)
Roman Kraeussl (Department of Finance and Financial Sector Management, VU University Amsterdam, Amsterdam, The Netherlands)
Chiara Monticone (CeRP/Collegio Carlo Alberto, Torino, Italy)

Journal of Financial Economic Policy

ISSN: 1757-6385

Article publication date: 9 August 2011



The purpose of this paper is to study the impact of the 2007 Italian severance payment reform on the cost and the access to credit for small‐ and medium‐sized enterprises (SMEs).


The authors study the implications of the reform adapting the theoretical credit‐rationing model of Holmstrom and Tirole, then estimate the capital outflows due to the reform and, using the theoretical prediction, assess its impact using mathematical simulations.


The authors predict that the reform may cause severe credit constraints to SMEs which cannot pledge enough collateral in order to obtain credit. The most direct consequences are to reduce in the long run the amount of liquid assets available to Italian firms, and to reduce their aggregate investment in a more than proportional way, due to access to credit restrictions. However, it will not increase the cost of intermediated finance, ceteris paribus.

Practical implications

The fact that the reform restricts access to credit, but does not increase the cost of debt, has important policy consequences, as public interventions subsidizing credit through a constant cost of debt may be ineffective.


While the topic has been analyzed in several respects (e.g. workers' participation to the reform, cost of an access to credit subsidy, etc.), no other study proposed an integrated view of these effects with a rigorous micro‐economic approach.



Calcagno, R., Kraeussl, R. and Monticone, C. (2011), "An analysis of the effects of the severance payment reform on credit to Italian SMEs", Journal of Financial Economic Policy, Vol. 3 No. 3, pp. 243-261.



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