A theory of fiscal policy response to an epidemic.
Health Econ
; 31(9): 2050-2071, 2022 09.
Article
in English
| MEDLINE | ID: covidwho-1905855
ABSTRACT
Governments worldwide have issued massive amounts of debt to inject fiscal stimulus during the COVID-19 pandemic. This paper analyzes fiscal responses to an epidemic, in which interactions at work increase the risk of disease and mortality. Fiscal policies, which are designed to borrow against the future and provide transfers to individuals suffering economic hardship, can facilitate consumption smoothing while reduce hours worked and hence mitigate infections. We examine the optimal fiscal policy and characterize the condition under which fiscal policy improves social welfare. We then extend the model analyzing the static and dynamic pecuniary externalities under scale economies-the decrease in labor supply during the epidemic lowers the contemporaneous average wage rate while enhances the post-epidemic workforce health and productivity. We suggest that fiscal policy may not work effectively unless the government coordinates working time, and the optimal size of public debt is affected by production technology and disease severity and transmissibility.
Keywords
Full text:
Available
Collection:
International databases
Database:
MEDLINE
Main subject:
Social Welfare
/
Pandemics
/
Fiscal Policy
/
COVID-19
Type of study:
Observational study
/
Prognostic study
Limits:
Humans
Language:
English
Journal:
Health Econ
Journal subject:
Health Services
Year:
2022
Document Type:
Article
Affiliation country:
Hec.4564
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