The Distributional Effects of Covid-19 and Mitigation Policies

32 Pages Posted: 4 Sep 2020

See all articles by Sewon Hur

Sewon Hur

Federal Reserve Bank of Dallas

Date Written: September, 2020

Abstract

This paper develops a quantitative life cycle model in which economic decisions impact the spread of COVID-19 and, conversely, the virus affects economic decisions. The calibrated model is used to measure the welfare costs of the pandemic across the age, income and wealth distribution and to study the effectiveness of various mitigation policies. In the absence of mitigation, young workers engage in too much economic activity relative to the social optimum, leading to higher rates of infection and death in the aggregate. The paper considers a subsidy-and-tax policy that imposes a tax on consumption and subsidizes reduced work compared to a lockdown policy that caps work hours. Both policies are welfare improving and lead to less infections and deaths. Notably, almost all agents favor the subsidy-and-tax policy, suggesting that there need not be a tradeoff between saving lives and economic welfare.

Keywords: pandemic, coronavirus, COVID-19

JEL Classification: D62, E21, E32, E62, I14, I15

Suggested Citation

Hur, Sewon, The Distributional Effects of Covid-19 and Mitigation Policies (September, 2020). Globalization and Monetary Policy Institute Working Paper No. 400, Available at SSRN: https://ssrn.com/abstract=3686276 or http://dx.doi.org/10.24149/gwp400

Sewon Hur (Contact Author)

Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

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