IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/27046.html
   My bibliography  Save this paper

Health versus Wealth: On the Distributional Effects of Controlling a Pandemic

Author

Listed:
  • Andrew Glover
  • Jonathan Heathcote
  • Dirk Krueger
  • José-Víctor Ríos-Rull

Abstract

To slow the spread of the COVID-19 virus, many countries shut down parts of the economy. Older individuals have the most to gain from slowing virus diffusion. Younger workers in sectors that are shuttered have most to lose. We build a model in which economic activity and disease progression are jointly determined. Individuals differ by age (young, retired), by sector (basic, luxury), and by health status. Disease transmission occurs in the workplace, through consumption, at home, and in hospitals. We study the optimal economic mitigation policy for a government that can redistribute through taxes and transfers, but where taxation distorts labor supply. We show that shutdowns are optimally milder in 2020 when taxes are distortionary, and when the government does not have access to debt. A harder but shorter shutdown is preferred when vaccines become available in the first half of 2021.

Suggested Citation

  • Andrew Glover & Jonathan Heathcote & Dirk Krueger & José-Víctor Ríos-Rull, 2020. "Health versus Wealth: On the Distributional Effects of Controlling a Pandemic," NBER Working Papers 27046, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27046
    Note: AG EFG EH LS PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w27046.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Dirk Krueger & Harald Uhlig & Taojun Xie, 2022. "Macroeconomic dynamics and reallocation in an epidemic: evaluating the ‘Swedish solution’," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 37(110), pages 341-398.
    2. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2017. "Optimal Tax Progressivity: An Analytical Framework," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1693-1754.
    3. Dirk Kruger & Harald Uhlig & Taojun Xie, 2020. "Macroeconomic Dynamics and Reallocation in an Epidemic," Working Papers 2020-43, Becker Friedman Institute for Research In Economics.
    4. Martin S Eichenbaum & Sergio Rebelo & Mathias Trabandt, 2021. "The Macroeconomics of Epidemics [Economic activity and the spread of viral diseases: Evidence from high frequency data]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5149-5187.
    5. Garriga, Carlos & Manuelli, Rody & Sanghi, Siddhartha, 2022. "Optimal management of an epidemic: Lockdown, vaccine and value of life," Journal of Economic Dynamics and Control, Elsevier, vol. 140(C).
    6. Bognanni, Mark & Hanley, Doug & Kolliner, Daniel & Mitman, Kurt, 2020. "Economics and Epidemics: Evidence from an Estimated Spatial Econ-SIR Model," IZA Discussion Papers 13797, Institute of Labor Economics (IZA).
    7. Daron Acemoglu & Victor Chernozhukov & Iván Werning & Michael D. Whinston, 2021. "Optimal Targeted Lockdowns in a Multigroup SIR Model," American Economic Review: Insights, American Economic Association, vol. 3(4), pages 487-502, December.
    8. David Berger & Kyle Herkenhoff & Chengdai Huang & Simon Mongey, 2022. "Testing and Reopening in an SEIR Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 43, pages 1-21, January.
    9. Kuhn, Moritz & Bayer, Christian, 2020. "Intergenerational ties and case fatality rates: A cross-country analysis," CEPR Discussion Papers 14519, C.E.P.R. Discussion Papers.
    10. Greg Kaplan & Benjamin Moll & Giovanni L. Violante, 2020. "The Great Lockdown and the Big Stimulus: Tracing the Pandemic Possibility Frontier for the U.S," NBER Working Papers 27794, National Bureau of Economic Research, Inc.
    11. Fernández-Villaverde, Jesús & Jones, Charles I., 2022. "Estimating and simulating a SIRD Model of COVID-19 for many countries, states, and cities," Journal of Economic Dynamics and Control, Elsevier, vol. 140(C).
    12. V. V. Chari & Rishabh Kirpalani & Christopher Phelan, 2021. "The Hammer and the Scalpel: On the Economics of Indiscriminate versus Targeted Isolation Policies during Pandemics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 42, pages 1-14, October.
    13. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
    14. Timo Boppart & Karl Harmenberg & John Hassler & Per Krusell & Jonna Olsson, 2020. "Integrated epi-econ assessment," Edinburgh School of Economics Discussion Paper Series 297, Edinburgh School of Economics, University of Edinburgh.
    15. David Berger & Kyle Herkenhoff & Chengdai Huang & Simon Mongey, 2022. "Testing and Reopening in an SEIR Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 43, pages 1-21, January.
    16. Alexis Akira Toda, 2020. "Susceptible-Infected-Recovered (SIR) Dynamics of COVID-19 and Economic Impact," Papers 2003.11221, arXiv.org, revised Mar 2020.
    17. Glover, Andrew & Heathcote, Jonathan & Krueger, Dirk & Ríos-Rull, José-Víctor, 2023. "Health versus wealth: On the distributional effects of controlling a pandemic," Journal of Monetary Economics, Elsevier, vol. 140(C), pages 34-59.
    18. Roland Benabou, 2002. "Tax and Education Policy in a Heterogeneous-Agent Economy: What Levels of Redistribution Maximize Growth and Efficiency?," Econometrica, Econometric Society, vol. 70(2), pages 481-517, March.
    19. Fang, Hanming & Wang, Long & Yang, Yang, 2020. "Human mobility restrictions and the spread of the Novel Coronavirus (2019-nCoV) in China," Journal of Public Economics, Elsevier, vol. 191(C).
    20. Farboodi, Maryam & Jarosch, Gregor & Shimer, Robert, 2021. "Internal and external effects of social distancing in a pandemic," Journal of Economic Theory, Elsevier, vol. 196(C).
    21. Andrew Glover & Jonathan Heathcote & Dirk Krueger & José-Víctor Ríos-Rull, 2020. "Intergenerational Redistribution in the Great Recession," Journal of Political Economy, University of Chicago Press, vol. 128(10), pages 3730-3778.
    22. Veronica Guerrieri & Guido Lorenzoni & Ludwig Straub & Iván Werning, 2022. "Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages?," American Economic Review, American Economic Association, vol. 112(5), pages 1437-1474, May.
    23. Casey B. Mulligan, 2020. "Deaths of Despair and the Incidence of Excess Mortality in 2020," Working Papers 2020-185, Becker Friedman Institute for Research In Economics.
    24. Michael Greenstone & Vishan Nigam, 2020. "Does Social Distancing Matter?," Working Papers 2020-26, Becker Friedman Institute for Research In Economics.
    25. Casey B. Mulligan, 2020. "Deaths of Despair and the Incidence of Excess Mortality in 2020," NBER Working Papers 28303, National Bureau of Economic Research, Inc.
    26. Luiz Brotherhood & Philipp Kircher & Cezar Santos & Michéle Tertilt, 2020. "An Economic Model of the COVID-19 Pandemic With Young and Old Agents: Behavior, Testing and Policies," CRC TR 224 Discussion Paper Series crctr224_2020_175v2, University of Bonn and University of Mannheim, Germany.
    27. Glover, Andrew & Heathcote, Jonathan & Krueger, Dirk, 2022. "Optimal age-Based vaccination and economic mitigation policies for the second phase of the covid-19 pandemic," Journal of Economic Dynamics and Control, Elsevier, vol. 140(C).
    28. Fernando Alvarez & David Argente & Francesco Lippi, 2021. "A Simple Planning Problem for COVID-19 Lock-down, Testing, and Tracing," American Economic Review: Insights, American Economic Association, vol. 3(3), pages 367-382, September.
    29. Gollier, Christian, 2021. "The Welfare Cost of Vaccine Misallocation, Delays and Nationalism," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 12(2), pages 199-226, July.
    30. Andrew Atkeson, 2020. "What Will be the Economic Impact of COVID-19 in the US? Rough Estimates of Disease Scenarios," Staff Report 595, Federal Reserve Bank of Minneapolis.
    31. Toxvaerd, F.M.O, 2020. "Equilibrium Social Distancing," Cambridge Working Papers in Economics 2021, Faculty of Economics, University of Cambridge.
    32. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
    33. Robert E. Hall & Charles I. Jones & Peter J. Klenow, 2020. "Trading Off Consumption and COVID-19 Deaths," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 42(1), pages 1-14, June.
    34. Miguel Faria-e-Castro, 2020. "Back-of-the-Envelope Estimates of Next Quarter’s Unemployment Rate," On the Economy 87740, Federal Reserve Bank of St. Louis.
    35. Joël Mossong & Niel Hens & Mark Jit & Philippe Beutels & Kari Auranen & Rafael Mikolajczyk & Marco Massari & Stefania Salmaso & Gianpaolo Scalia Tomba & Jacco Wallinga & Janneke Heijne & Malgorzata Sa, 2008. "Social Contacts and Mixing Patterns Relevant to the Spread of Infectious Diseases," PLOS Medicine, Public Library of Science, vol. 5(3), pages 1-1, March.
    36. Boppart, Timo & Harmenberg, Karl & Krusell, Per & Olsson, Jonna, 2022. "Integrated epi-econ assessment of vaccination," Journal of Economic Dynamics and Control, Elsevier, vol. 140(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Glover, Andrew & Heathcote, Jonathan & Krueger, Dirk, 2022. "Optimal age-Based vaccination and economic mitigation policies for the second phase of the covid-19 pandemic," Journal of Economic Dynamics and Control, Elsevier, vol. 140(C).
    2. Garriga, Carlos & Manuelli, Rody & Sanghi, Siddhartha, 2022. "Optimal management of an epidemic: Lockdown, vaccine and value of life," Journal of Economic Dynamics and Control, Elsevier, vol. 140(C).
    3. Yinon Bar-On & Tatiana Baron & Ofer Cornfeld & Eran Yashiv, 2023. "When to Lock, Not Whom: Managing Epidemics Using Time-Based Restrictions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 292-321, December.
    4. Yinon Bar-On & Tatiana Baron & Ofer Cornfeld & Eran Yashiv, 2023. "When to Lock, Not Whom: Managing Epidemics Using Time-Based Restrictions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 292-321, December.
    5. Yinon Bar-On & Tatiana Baron & Ofer Cornfeld & Eran Yashiv, 2023. "When to Lock, Not Whom: Managing Epidemics Using Time-Based Restrictions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 292-321, December.
    6. Giagheddu, Marta & Papetti, Andrea, 2023. "The macroeconomics of age-varying epidemics," European Economic Review, Elsevier, vol. 151(C).
    7. Sewon Hur, 2023. "The Distributional Effects Of Covid‐19 And Optimal Mitigation Policies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(1), pages 261-294, February.
    8. Eichenbaum, Martin S. & Rebelo, Sergio & Trabandt, Mathias, 2022. "The macroeconomics of testing and quarantining," Journal of Economic Dynamics and Control, Elsevier, vol. 138(C).
    9. Dizioli, Allan & Pinheiro, Roberto, 2021. "Information and inequality in the time of a pandemic," Journal of Economic Dynamics and Control, Elsevier, vol. 130(C).
    10. Farboodi, Maryam & Jarosch, Gregor & Shimer, Robert, 2021. "Internal and external effects of social distancing in a pandemic," Journal of Economic Theory, Elsevier, vol. 196(C).
    11. Vandenbroucke Guillaume, 2022. "The Mechanics of Individually- and Socially-Optimal Decisions during an Epidemic," The B.E. Journal of Macroeconomics, De Gruyter, vol. 22(1), pages 131-158, January.
    12. V. V. Chari & Rishabh Kirpalani & Christopher Phelan, 2021. "The Hammer and the Scalpel: On the Economics of Indiscriminate versus Targeted Isolation Policies during Pandemics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 42, pages 1-14, October.
    13. Guimarães, Luís, 2021. "Antibody tests: They are more important than we thought," Journal of Mathematical Economics, Elsevier, vol. 93(C).
    14. Marina Azzimonti-Renzo & Alessandra Fogli & Fabrizio Perri & Mark Ponder, 2020. "Pandemic Control in ECON-EPI Networks," Staff Report 609, Federal Reserve Bank of Minneapolis.
    15. Nicola Fuchs-Schündeln & Dirk Krueger & André Kurmann & Etienne Lalé & Alexander Ludwig & Irina Popova, 2023. "The Fiscal and Welfare Effects of Policy Responses to the Covid-19 School Closures," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(1), pages 35-98, March.
    16. Dirk Krueger & Harald Uhlig & Taojun Xie, 2020. "Macroeconomic Dynamics and Reallocation in an Epidemic," PIER Working Paper Archive 20-015, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    17. Çakmaklı, Cem & Demiralp, Selva & Özcan, Şebnem Kalemli & Yeşiltaş, Sevcan & Yıldırım, Muhammed A., 2023. "COVID-19 and emerging markets: A SIR model, demand shocks and capital flows," Journal of International Economics, Elsevier, vol. 145(C).
    18. Mitman, Kurt & Hanley, Douglas & Bognanni, Mark & Kolliner, Daniel, 2020. "Economics and Epidemics: Evidence from an Estimated Spatial Econ-SIR Model," CEPR Discussion Papers 15310, C.E.P.R. Discussion Papers.
    19. Yasushi Iwamoto, 2021. "Welfare economics of managing an epidemic: an exposition," The Japanese Economic Review, Springer, vol. 72(4), pages 537-579, October.
    20. Stefan Pollinger, 2023. "Optimal Contact Tracing and Social Distancing Policies to Suppress A New Infectious Disease," The Economic Journal, Royal Economic Society, vol. 133(654), pages 2483-2503.

    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:27046. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.