Targeting and potential adverse effects of income support for the self-employed during COVID-19

Abstract We study the targeting and behavioral effects of a large income support scheme for the self-employed in the Netherlands during the COVID-19 pandemic. We combine administrative data on all self-employed with data on income and wealth, data on hours worked from the Labor Force Survey and data on sales from tax records. We show that the introduction of a household income test made the scheme more targeted at low-income households during the pandemic. Next, we use differences-in-differences to study the potential adverse behavioral effects of this targeting. The treatment group consists of self-employed without a partner and the control group consists of self-employed with a partner, where the former are much more likely to use the support scheme after the introduction of the household income test than the latter. We find a statistically significant drop in hours worked and sales for the treatment group relative to the control group during the period of the household income test, when compared to the period before the COVID-19 pandemic. However, this effect is not statistically significantly different from the drop in hours worked and sales when compared to the period during the COVID-19 pandemic before the introduction of the household income test. Hence, we cannot rule out that the effects are driven by different responses of singles and couples to the pandemic, as opposed to adverse behavioral responses from the targeting.