The Distributional Effects of Covid-19 and Optimal Mitigation Policies

55 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 heterogeneous agent-life cycle model with a fully integrated epidemiological model in which economic decisions affect the spread of COVID-19 and vice versa. The calibrated model is used to study the distributional consequences and effectiveness of mitigation policies such as a stay-at-home subsidy and a stay-at-home order. 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, Pareto-improving mitigation policies can reduce deaths by nearly 60 percent while only slightly reducing output relative to no mitigation. 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.

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

Suggested Citation

Hur, Sewon, The Distributional Effects of Covid-19 and Optimal 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/gwp400r2

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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