A Macroeconomic Model of Healthcare Saturation, Inequality and the Output-Pandemia Tradeoff
Enrique Mendoza,
Eugenio Rojas,
Linda Tesar () and
Jing Zhang
No 28247, NBER Working Papers from National Bureau of Economic Research, Inc
Abstract:
COVID-19 became a global health emergency when it threatened the catastrophic collapse of health systems as demand for health goods and services and their relative prices surged. Governments responded with lockdowns and increases in transfers. Empirical evidence shows that lockdowns and healthcare saturation contribute to explain the cross-country variation in GDP drops even after controlling for COVID-19 cases and mortality. We explain this output-pandemia tradeoff as resulting from a shock to subsistence health demand that is larger at higher capital utilization in a model with entrepreneurs and workers. The health system moves closer to saturation as the gap between supply and subsistence narrows, which worsens consumption and income inequality. An externality distorts utilization, because firms do not internalize that lower utilization relaxes healthcare saturation. The optimal policy response includes lockdowns and transfers to workers. Quantitatively, strict lockdowns and large transfer hikes can be optimal and yield sizable welfare gains because they prevent a sharp rise in inequality. Welfare and output costs vary in response to small parameter changes or deviations from optimal policies. Weak lockdowns coupled with weak transfers programs are the worst alternative and yet are in line with what several emerging and least developed countries have implemented.
JEL-codes: E3 E6 F44 I28 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ore
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)
Published as Enrique G. Mendoza & Eugenio Rojas & Linda L. Tesar & Jing Zhang, 2023. "A Macroeconomic Model of Healthcare Saturation, Inequality and the Output–Pandemia Trade-off," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(1), pages 243-299, March.
Downloads: (external link)
http://www.nber.org/papers/w28247.pdf (application/pdf)
Related works:
Journal Article: A Macroeconomic Model of Healthcare Saturation, Inequality and the Output–Pandemia Trade-off (2023) 
Working Paper: A Macroeconomic Model of Healthcare Saturation, Inequality and the Output-Pandemia Tradeoff (2021) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:28247
Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w28247
Access Statistics for this paper
More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().