Download This PaperHealth versus Wealth: On the Distributional Effects of Controlling a Pandemic
50 Pages Posted: 23 Apr 2020 Last revised: 18 Aug 2020
There are 2 versions of this paper
Health versus Wealth: On the Distributional Effects of Controlling a Pandemic
Health versus Wealth: On the Distributional Effects of Controlling a Pandemic
Date Written: July 21, 2020
Abstract
To slow COVID-19, many countries have shut down part of the economy. Older individuals have the most to gain from slowing virus diffusion. 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 differ 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.
Keywords: COVID-19; Economic Policy; Redistribution
Suggested Citation: Suggested Citation