The number of bankruptcies in the Norwegian economy dropped substantially during the COVID-19 pandemic. We investigate to what extent the arrangement for deferred payments of tax and duty claims contributed to keeping non-viable firms artificially alive during 2020 and 2021.
First, we provide evidence that firms defined as non-viable prior to the pandemic were more likely to apply for and be granted tax deferrals than their healthier counterparts. This finding alone would imply that such firms might have exploited the arrangement to stay alive. Further, we estimate the effect of being granted tax deferrals on the probability of going bankrupt in 2020 or 2021. In 2020, we find that the firms granted tax deferrals were significantly less likely to go bankrupt than what would have been the case in the absence of support. However, we do not find statistically significant results when the same relationship is estimated in 2021. In sum, this implies that the arrangement may have kept non-viable firms artificially alive, albeit for a limited period of time
