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

Author

Listed:
  • Glover, Andrew
  • Heathcote, Jonathan
  • Krueger, Dirk
  • Rios-Rull, Jose-Victor

Abstract

Many countries are shutting non-essential sectors of the economy to slow the spread of COVID-19. The gains and losses from these policies are very unequally distributed. Older individuals have most to gain from slowing virus diffusion. Younger workers in sectors that are shuttered have the most to lose. In this paper we first extend a standard epidemiological model of disease progression to include heterogeneity by age, and multiple sources of disease transmission. We then incorporate the epidemiological block into a multi-sector economic model in which workers differ by sector (basic and luxury) as well as by health status. Individuals value consumption, life, and health. We study optimal mitigation policies of a utilitarian government that can redistribute resources across individuals, but where such redistribution is costly. We show that optimal redistribution- and mitigation policies interact and thus the utilitarian government chooses a very different mitigation policy path than would be suggested by a representative agent setting. This policy reflects a compromise between the strongly diverging preferred policy paths across the subgroups of the population.

Suggested Citation

  • Glover, Andrew & Heathcote, Jonathan & Krueger, Dirk & Rios-Rull, Jose-Victor, 2020. "Health versus Wealth: On the Distributional Effects of Controlling a Pandemic," CEPR Discussion Papers 14606, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:14606
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    References listed on IDEAS

    as
    1. Dirk Kruger & Harald Uhlig & Taojun Xie, 2020. "Macroeconomic Dynamics and Reallocation in an Epidemic," Working Papers 2020-43, Becker Friedman Institute for Research In Economics.
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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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