The Great Lockdown and the Big Stimulus: Tracing the Pandemic Possibility Frontier for the U.S.

53 Pages Posted: 4 Sep 2020

See all articles by Greg Kaplan

Greg Kaplan

University of Chicago - Department of Economics

Benjamin Moll

Princeton University - Department of Economics

Giovanni Violante

Princeton University

Multiple version iconThere are 3 versions of this paper

Date Written: August 31, 2020

Abstract

We provide a quantitative analysis of the trade-offs between health outcomes and the distribution of economic outcomes associated with alternative policy responses to the COVID-19 pandemic. We integrate an expanded SIR model of virus spread into a macroeconomic model with realistic income and wealth inequality, as well as occupational and sectoral heterogeneity. In the model, as in the data, economic exposure to the pandemic is strongly correlated with financial vulnerability, leading to very uneven economic losses across the population. We summarize our findings through a distributional pandemic possibility frontier, which shows the distribution of economic welfare costs associated with the different aggregate mortality rates arising under alternative containment and fiscal strategies. For all combinations of health and economic policies we consider, the economic welfare costs of the pandemic are large and heterogeneous. Thus, the choice governments face when designing policy is not just between lives and livelihoods, as is often emphasized, but also over who should bear the burden of the economic costs. We offer a quantitative framework to evaluate both trade-offs.

Suggested Citation

Kaplan, Greg and Moll, Benjamin and Violante, Giovanni, The Great Lockdown and the Big Stimulus: Tracing the Pandemic Possibility Frontier for the U.S. (August 31, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-119, Available at SSRN: https://ssrn.com/abstract=3685207 or http://dx.doi.org/10.2139/ssrn.3685207

Greg Kaplan (Contact Author)

University of Chicago - Department of Economics ( email )

1126 E. 59th St
Chicago, IL 60637
United States

Benjamin Moll

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Giovanni Violante

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

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