Distributional Effects of Macroeconomic Shocks in Real-Time: A Novel Method Applied to the COVID-19 Crisis in Germany

38 Pages Posted: 14 Dec 2020

See all articles by Kerstin Bruckmeier

Kerstin Bruckmeier

Karlsruhe Institute of Technology

Andreas Peichl

CESifo (Center for Economic Studies and Ifo Institute)

Martin Popp

Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Jürgen Wiemers

Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Timo Wollmershaeuser

Ifo Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 2020

Abstract

The highly dynamic nature of the COVID-19 crisis poses an unprecedented challenge to policy makers around the world to take appropriate income-stabilizing countermeasures. To properly design such policy measures, it is important to quantify their effects in real-time. However, data on the relevant outcomes at the micro level is usually only available with considerable time lags. In this paper, we propose a novel method to assess the distributional consequences of macroeconomic shocks and policy responses in real-time and provide the first application to Germany in the context of the COVID-19 pandemic. Specifically, our approach combines different economic models estimated on firm- and household-level data: a VAR-model for output expectations, a structural labor demand model, and a tax-benefit microsimulation model. Our findings show that as of September 2020 the COVID-19 shock translates into a noticeable reduction in gross labor income across the entire income distribution. However, the tax benefit system and discretionary policy responses to the crisis act as important income stabilizers, since the effect on the distribution of disposable household incomes turns progressive: the bottom two deciles actually gain income, the middle deciles are hardly affected, and only the upper deciles lose income.

JEL Classification: D310, E240, E370, H240, J230

Suggested Citation

Bruckmeier, Kerstin and Peichl, Andreas and Popp, Martin and Wiemers, Jürgen and Wollmershaeuser, Timo, Distributional Effects of Macroeconomic Shocks in Real-Time: A Novel Method Applied to the COVID-19 Crisis in Germany (2020). CESifo Working Paper No. 8748, Available at SSRN: https://ssrn.com/abstract=3746763

Kerstin Bruckmeier (Contact Author)

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

Andreas Peichl

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Martin Popp

Government of the Federal Republic of Germany - Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

Jürgen Wiemers

Government of the Federal Republic of Germany - Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

Timo Wollmershaeuser

Ifo Institute for Economic Research ( email )

Poschingerstrasse 5
Munich, 81879
Germany
+49 89 9224 1406 (Phone)
+49 89 9224 1462 (Fax)

HOME PAGE: http://www.ifo.de/link/wollmershaeuser_t.htm

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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