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Should we Hibernate in a Lockdown?

Author

Listed:
  • Federico Sturzenegger

    (Universidad de San Andres)

Abstract

Discussion on the optimal response to lockdowns is just starting. In this note, we make a simple yet apparently ignored point. If a lockdown entails a reduction in the desire for consumption, attempts to smooth the income effect of the lockdown lead to welfare losses. The optimal response resembles hibernation whereas it is optimal to lower consumption while the lockdown persists. In a framework with public goods, the result suggests it may also be optimal to reduce non-essential public spending hand in hand with taxes.

Suggested Citation

  • Federico Sturzenegger, 2020. "Should we Hibernate in a Lockdown?," Economics Bulletin, AccessEcon, vol. 40(3), pages 2023-2033.
    • Handle: RePEc:ebl:ecbull:eb-20-00471
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Lockdown; hibernation; consumption smoothing;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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