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The Distributional Effects of COVID-19 and Optimal Mitigation Policies

Author

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  • Sewon Hur

Abstract

This paper develops a quantitative heterogeneous agent–life cycle model with a fully integrated epidemiological model in which economic decisions affect the spread of COVID-19 and, conversely, the virus affects economic decisions. The calibrated model is used to study the distributional consequences and effectiveness of two mitigation policies: a stay-at-home subsidy that subsidizes reduced hours worked and a stay-at-home order that limits outside hours. First, the stay-at-home subsidy is preferred because it reduces deaths by more and output by less, leading to a larger average welfare gain that benefits all individuals. Second, optimal mitigation policies involve a stay-at-home subsidy of $450–$900 per week for 16–18 months, depending on the welfare criterion. Finally, it is possible to simultaneously improve public health and economic outcomes, suggesting that debates regarding a supposed tradeoff between economic and health objectives may be misguided.

Suggested Citation

  • Sewon Hur, 2020. "The Distributional Effects of COVID-19 and Optimal Mitigation Policies," Globalization Institute Working Papers 400, Federal Reserve Bank of Dallas, revised 23 Oct 2020.
  • Handle: RePEc:fip:feddgw:88689
    DOI: 10.24149/gwp400r1
    as

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    References listed on IDEAS

    as
    1. Bick, Alexander & Blandin, Adam & Mertens, Karel, 2020. "Work from Home After the COVID-19 Outbreak," CEPR Discussion Papers 15000, C.E.P.R. Discussion Papers.
    2. Serdar Birinci & Fatih Karahan & Yusuf Mercan & Kurt See, 2020. "Labor Market Policies During an Epidemic," Staff Working Papers 20-54, Bank of Canada.
    3. Juan Carlos Conesa & Sagiri Kitao & Dirk Krueger, 2009. "Taxing Capital? Not a Bad Idea after All!," American Economic Review, American Economic Association, vol. 99(1), pages 25-48, March.
    4. , 2020. "Lessons on the Economics of Pandemics from Recent Research," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2020(11), pages 1-7, May.
    5. Raj Chetty & Adam Guren & Day Manoli & Andrea Weber, 2011. "Are Micro and Macro Labor Supply Elasticities Consistent? A Review of Evidence on the Intensive and Extensive Margins," American Economic Review, American Economic Association, vol. 101(3), pages 471-475, May.
    6. Daniel R. Carroll & Sewon Hur, 2020. "On the Distributional Effects of International Tariffs," Working Papers 202018, Federal Reserve Bank of Cleveland.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    pandemic; coronavirus; COVID-19; mitigation; tradeoffs;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development

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