Simulating the Impact of COVID-19 on Formal Firms in South Africa
MTI Practice Notes 9K
This note uses administrative tax data for formal firms to measure the direct impact of lockdown restrictions on firms’ profitability, employment, and exit rates. The authors separate the economy into three categories, according to the size of the shock experienced, and consider two lockdown scenarios: one lasting three months and one lasting five months. These scenarios are clearly stylized and they do not necessarily reflect the reality of any country. They are, however, not too distant from the South African reality, where an initial strict lockdown was imposed for two months, followed by several months of easing restrictions and reduced economic activity. The authors estimate losses to corporate income tax (CIT) revenue, increases in firms’ debt levels, cuts in employment and their mitigation through wage subsidies, and aggregate output losses from firms’ exit.