Stay-at-Home Orders in a Fiscal Union

65 Pages Posted: 7 Dec 2020 Last revised: 3 Jul 2023

See all articles by Mario J. Crucini

Mario J. Crucini

Vanderbilt University - College of Arts and Science - Department of Economics; National Bureau of Economic Research (NBER)

Oscar O'Flaherty

Vanderbilt University

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Date Written: December 2020

Abstract

State and local governments throughout the United States attempted to mitigate the spread of Covid-19 using stay-at-home orders to limit social interactions and mobility. We study the economic impact of these orders and their optimal implementation in a fiscal union. Using an event study framework, we find that stay-at-home orders caused a 4 percentage point decrease in consumer spending and hours worked. These estimates suggest a $10 billion decrease in spending and $15 billion in lost earnings. We then develop an economic SIR model with multiple locations to study the optimal implementation of stay-at-home orders. From a national welfare perspective, the model suggests that it is optimal for locations with higher infection rates to set stricter mitigation policies. This occurs as a common, national policy is too restrictive for the economies of mildly infected areas and causes greater declines in consumption and hours worked than are optimal.

Suggested Citation

Crucini, Mario J. and O'Flaherty, Oscar, Stay-at-Home Orders in a Fiscal Union (December 2020). NBER Working Paper No. w28182, Available at SSRN: https://ssrn.com/abstract=3743915

Mario J. Crucini (Contact Author)

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Oscar O'Flaherty

Vanderbilt University

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United States

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