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Stay-at-Home Orders in a Fiscal Union

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  • Mario J. Crucini
  • Oscar O'Flaherty

Abstract

State and local governments throughout the United States attempted to mitigate the spread of Covid-19 using stay-at-home orders to limit social interactions and mobility. We study the economic impact of these orders and their optimal implementation in a fiscal union. Using an event study framework, we find that stay-at-home orders caused a 4 percentage point decrease in consumer spending and hours worked. These estimates suggest a $10 billion decrease in spending and $15 billion in lost earnings. We then develop an economic SIR model with multiple locations to study the optimal implementation of stay-at-home orders. From a national welfare perspective, the model suggests that it is optimal for locations with higher infection rates to set stricter mitigation policies. This occurs as a common, national policy is too restrictive for the economies of mildly infected areas and causes greater declines in consumption and hours worked than are optimal.

Suggested Citation

  • Mario J. Crucini & Oscar O'Flaherty, 2020. "Stay-at-Home Orders in a Fiscal Union," NBER Working Papers 28182, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28182
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    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19 > Health > Distancing and Lockdown > Optimal policy

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    Cited by:

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    2. Krause, Willi & Costa, Luís & Costa Filho, João Ricardo, 2023. "The Covid-19 Recession in Germany: A Macropidemiological Analysis," Working Papers REM 2023/0290, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    3. Eichenbaum, Martin S. & Rebelo, Sergio & Trabandt, Mathias, 2022. "The macroeconomics of testing and quarantining," Journal of Economic Dynamics and Control, Elsevier, vol. 138(C).
    4. Martin S. Eichenbaum & Sergio Rebelo & Mathias Trabandt, 2022. "Inequality in Life and Death," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(1), pages 68-104, March.
    5. Jacek Rothert, 2021. "Optimal federal transfers during uncoordinated response to a pandemic," GRAPE Working Papers 58, GRAPE Group for Research in Applied Economics.
    6. Kyriakos C. Neanidis & Maria P. Rana, 2023. "Crime in the era of COVID‐19: Evidence from England," Journal of Regional Science, Wiley Blackwell, vol. 63(5), pages 1100-1130, November.
    7. Bisin, Alberto & Moro, Andrea, 2022. "JUE insight: Learning epidemiology by doing: The empirical implications of a Spatial-SIR model with behavioral responses," Journal of Urban Economics, Elsevier, vol. 127(C).

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    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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