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Pandemic Economic Lifeline: Taxes on Consumption, Labor that Fund Stay-at-Home Subsidies
Stay-at-home subsidies funded by taxes on consumption and labor—activities that contribute to viral transmission—can simultaneously reduce deaths and increase output.
Journal Article
Lessons on the Economics of Pandemics from Recent Research
The spread of the COVID-19 pandemic has resulted in a dual public health and economic crisis. Many economic studies in the past few months have explored the relationship between the spread of disease and economic activity, the role for government intervention in the crisis, and the effectiveness of testing and containment policies. This Commentary summarizes the methods and findings of a number of these studies. The economic research conducted to date shows that adequate testing and selective containment measures can be effective in fighting the COVID-19 pandemic, and in the absence of ...
Working Paper
On the Heterogeneous Welfare Gains and Losses from Trade
How are the gains and losses from trade distributed across individuals within a country? First, we document that tradable goods and services constitute a larger fraction of expenditures for low-wealth and low-income households. Second, we build a trade model with nonhomothetic preferences?to generate the documented relationship between tradable expenditure shares, income, and wealth?and uninsurable earnings risk?to generate heterogeneity in income and wealth. Third, we use the calibrated model to quantify the differential welfare gains and losses from trade along the income and wealth ...
Working Paper
A theory of rollover risk, sudden stops, and foreign reserves
Emerging economies, unlike advanced economies, have accumulated large foreign reserve holdings. We argue that this policy is an optimal response to an increase in foreign debt rollover risk. In our model, reserves play a key role in reducing debt rollover crises ("sudden stops"), akin to the role of bank reserves in preventing bank runs. We find that a small, unexpected, and permanent increase in rollover risk accounts for the outburst of sudden stops in the late 1990s, the subsequent increase in foreign reserves holdings, and the salient resilience of emerging economies to sudden stops ...
Working Paper
The Distributional Effects of COVID-19 and Mitigation Policies
This paper develops a quantitative life cycle model in which economic decisions impact the spread of COVID-19 and, conversely, the virus affects economic decisions. The calibrated model is used to measure the welfare costs of the pandemic across the age, income and wealth distribution and to study the effectiveness of various mitigation policies. In the absence of mitigation, young workers engage in too much economic activity relative to the social optimum, leading to higher rates of infection and death in the aggregate. The paper considers a subsidy-and-tax policy that imposes a tax on ...
Report
Firm Entry and Exit and Aggregate Growth
Using data from Chile and Korea, we find that a larger fraction of aggregate productivity growth is due to firm entry and exit during fast-growth episodes compared to slow-growth episodes. Studies of other countries confirm this empirical relationship. We develop a model of endogenous firm entry and exit based on Hopenhayn (1992). Firms enter with efficiencies drawn from a distribution whose mean grows over time. After entering, a firm?s efficiency grows with age. In the calibrated model, reducing entry costs or barriers to technology adoption generates the pattern we document in the data. ...
Working Paper
The Distributional Effects of COVID-19 and Optimal Mitigation Policies
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 ...
Working Paper
Firm Entry and Exit and Aggregate Growth
Applying the Foster, Haltiwanger, and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that the entry and exit of plants account for a larger fraction of aggregate productivity growth during periods of fast GDP growth. Studies of other countries confirm this empirical relationship. To analyze this relationship, we develop a simple model of firm entry and exit based on Hopenhayn (1992) in which there are analytical expressions for the FHK decomposition. When we introduce reforms that reduce entry costs or reduce barriers to technology adoption ...
Report
The Interaction and Sequencing of Policy Reforms
In what order should a developing country adopt policy reforms? Do some policies complement each other? Do others substitute for each other? To address these questions, we develop a two-country dynamic general equilibrium model with entry and exit of firms that are monopolistic competitors. Distortions in the model include barriers to entry of firms, barriers to international trade, and barriers to contract enforcement. We find that a reform that reduces one of these distortions has different effects depending on the other distortions present. In particular, reforms to trade barriers and ...
Working Paper
On the Heterogeneous Welfare Gains and Losses from Trade
How are the gains and losses from trade distributed across individuals within a country? First, we document that tradable goods constitute a larger fraction of expenditures for poor households. Second, we build a trade model with nonhomothetic preferences?to generate the documented relationship between tradable expenditure shares, income, and wealth?and uninsurable earnings risk?to generate heterogeneity in income and wealth. Third, we use the calibrated model to quantify the differential welfare gains and losses from trade along the income and wealth distribution. In a numerical exercise, we ...