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Health versus Wealth: On the Distributional Effects of Controlling a Pandemic

Author

Listed:
  • Andrew Glover

    (Federal Reserve Bank of Kansas City)

  • Jonathan Heathcote

    (Federal Reserve Bank of Minneapolis and CEPR)

  • Dirk Krueger

    (University of Pennsylvania and CEPR)

  • Jose-Victor Rios-Rull

    (University of Pennsylvania, UCL, CAERP, CEPR and NBER)

Abstract

o slow COVID-19, many countries have shut down part of the economy. Older individuals have the most to gain from slowing virus di usion. Younger workers in sectors that are shuttered have most to lose. In this paper, we build a model in which economic activity and disease progression are jointly determined. Individuals di er by age (young, retired), by sector (basic, luxury), and health status. Disease transmission occurs in the workplace, through consumption, at home, and in hospitals. We study the optimal economic mitigation policy for a government that can redistribute across individuals, but where redistribution is costly. Optimal redistribution and mitigation policies interact, and more modest shutdowns are optimal when redistribution is more costly. We find that the shutdowns that were implemented in mid-April were too extensive, but a partial shutdown should remain in place through the fall. A deeper and longer shutdown is preferred if a vaccine is imminent.

Suggested Citation

  • Andrew Glover & Jonathan Heathcote & Dirk Krueger & Jose-Victor Rios-Rull, 2020. "Health versus Wealth: On the Distributional Effects of Controlling a Pandemic," PIER Working Paper Archive 20-014, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 21 Jul 2020.
    • Handle: RePEc:pen:papers:20-014
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    References listed on IDEAS

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    More about this item

    Keywords

    COVID-19; Economic Policy; Redistribution;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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