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The Distributional Effects of COVID-19 and Optimal Mitigation Policies

Sewon Hur ()

No 400, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

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, conversely, the virus affects economic decisions. The calibrated model is used to study the distributional consequences and effectiveness of two mitigation policies: a stay-at-home subsidy that subsidizes reduced hours worked and a stay-at-home order that limits outside hours. 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, optimal mitigation policies involve a stay-at-home subsidy of $450–$900 per week for 16–18 months, depending on the welfare criterion. 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.

Keywords: pandemic; coronavirus; COVID-19; mitigation; tradeoffs (search for similar items in EconPapers)
JEL-codes: D62 E21 E32 E62 I14 I15 (search for similar items in EconPapers)
Pages: 51
Date: 2020-09-02, Revised 2020-10-23
New Economics Papers: this item is included in nep-dge, nep-hea and nep-mac
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DOI: 10.24149/gwp400r1

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