The Economic Costs of Health Protection During COVID-19: A Sign-Restricted Var Analysis Across Countries

This paper investigates the dynamic trade-off between health outcomes and economic activity during the COVID-19 pandemic. Employing a panel vector autoregressive (PVAR) model with sign restrictions for 46 countries, we utilize weekly data on infections, the OECD GDP tracker, and the Oxford stringency index to identify structural incidence and containment shocks. We quantify the policy trade-off using a 'sacrifice ratio', defined as the percentage decline in infections relative to average economic losses. Our findings show that while containment shocks trigger immediate economic contractions, health benefits are lagged, with the sacrifice ratio peaking around 12 weeks at approximately 16–17 percent fewer infections per 1 percent GDP loss. A composite stringency index proves more effective than individual interventions, whereas school closures and public event cancellations yield the least favorable trade-offs. Counterfactual simulations indicate that policymakers pursued a mixed strategy, balancing reactions to both infection rates and economic signals. Finally, we document substantial cross-country heterogeneity, showing that structural factors such as service sector employment and trust in government significantly shape the effectiveness of containment measures.