Working Paper: NBER ID: w27794
Authors: Greg Kaplan; Benjamin Moll; Giovanni L. Violante
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.
Keywords: COVID-19; economic welfare; health outcomes; policy responses; inequality
JEL Codes: E0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lockdown policies (J18) | economic welfare (D69) |
| economic exposure (F31) | financial vulnerability (G32) |
| CARES Act (H84) | economic welfare losses (D69) |
| CARES Act (H84) | cumulative death count (J17) |
| exempting workers in social-intensive occupations from lockdowns (J68) | economic welfare costs (D69) |
| length of lockdowns (C41) | slope of the pandemic possibility frontier (C15) |
| economic exposure (F31) | economic losses in rigid, social-intensive occupations (J79) |