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Pandemic Shocks and Household Spending

Author

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  • David Finck

    (Justus Liebig University Giessen)

  • Peter Tillmann

    (Justus Liebig University Giessen)

Abstract

We study the response of daily household spending to the unexpected component of the COVID-19 pandemic, which we label as pandemic shock. Based on daily forecasts of the number of fatalities, we construct the surprise component as the difference between the actual and the expected number of deaths. We allow for state-dependent effects of the shock depending on the position on the curve of infections. Spending falls after the shock and is particularly sensitive to the shock when the number of new infections is strongly increasing. If the number of infections grows moderately, the drop in spending is smaller. We also estimate the effect of the shock across income quartiles. In each state, low-income households exhibit a significantly larger drop in consumption than high-income households. Thus, consumption inequality increase after a pandemic shock. Our results hold for the US economy and the key US states. The findings remain unchanged if we choose alternative state-variables to separate regimes.

Suggested Citation

  • David Finck & Peter Tillmann, 2020. "Pandemic Shocks and Household Spending," MAGKS Papers on Economics 202036, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:202036
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    References listed on IDEAS

    as
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    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19 > Economic consequences > Consumption

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    Cited by:

    1. Heinrich, Torsten, 2021. "Epidemics in modern economies," MPRA Paper 107578, University Library of Munich, Germany.
    2. Vasconcelos Costa, André, 2021. "Rising Stocks during Lockdown Economic Recessions: Explaining the Phenomenon," MPRA Paper 106710, University Library of Munich, Germany.

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    More about this item

    Keywords

    COVID-19; pandemic; consumption; smooth-transition model; state-dependence;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • I10 - Health, Education, and Welfare - - Health - - - General

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