Working Paper: NBER ID: w28182
Authors: Mario J. Crucini; Oscar O'Flaherty
Abstract: State and local governments throughout the United States attempted to mitigate the spread of Covid-19 using stay-at-home orders to limit social interactions and mobility. We study the economic impact of these orders and their optimal implementation in a fiscal union. Using an event study framework, we find that stay-at-home orders caused a 4 percentage point decrease in consumer spending and hours worked. These estimates suggest a $10 billion decrease in spending and $15 billion in lost earnings. We then develop an economic SIR model with multiple locations to study the optimal implementation of stay-at-home orders. From a national welfare perspective, the model suggests that it is optimal for locations with higher infection rates to set stricter mitigation policies. This occurs as a common, national policy is too restrictive for the economies of mildly infected areas and causes greater declines in consumption and hours worked than are optimal.
Keywords: COVID-19; stay-at-home orders; economic impact; fiscal union; event study
JEL Codes: E3; E47; E62; H12; H23; H7
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stay-at-home orders (H76) | consumer spending (D12) |
| stay-at-home orders (H76) | hours worked (J22) |
| stay-at-home orders (H76) | employment decline (J63) |
| non-essential business closures (L84) | consumer spending (D12) |
| stay-at-home orders (H76) | labor market response (J20) |
| stricter mitigation policies (E63) | consumption and employment (E20) |
| stay-at-home orders (H76) | high-income workers' employment decline (J69) |
| early-treated states (I12) | employment decline (J63) |
| late-treated states (H73) | employment decline (J63) |