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

Kerstin Bruckmeier, Andreas Peichl, Martin Popp, Jürgen Wiemers and Timo Wollmershäuser

No 8748, CESifo Working Paper Series from CESifo

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.

Keywords: income distribution; inequality; recession; Covid-19; tax-benefit policies; short-time work; business survey; labor demand; microsimulation (search for similar items in EconPapers)
JEL-codes: D31 E24 E37 H24 J23 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-lma and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Distributional Effects of Macroeconomic Shocks in Real-Time: A Novel Method Applied to the Covid-19 Crisis in Germany (2020)
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