Ariadne Checo, Mr. Francesco Grigoli, and José M. Mota
The large economic costs of full-blown lockdowns in response to COVID-19 outbreaks, coupled with heterogeneous mortality rates across age groups, led to question non-discriminatory containment measures. In this paper we provide an assessment of the targeted approach to containment. We propose a SIR-macro model that allows for heterogeneous agents in terms of mortality rates and contact rates, and in which the government optimally bans people from working. We find that under a targeted policy, the optimal containment reaches a larger portion of the population than under a blanket policy and is held in place for longer. Compared to a blanket policy, a targeted approach results in a smaller death count. Yet, it is not a panacea: the recession is larger under such approach as the containment policy applies to a larger fraction of people, remains in place for longer, and herd immunity is achieved later. Moreover, we find that increased interactions between low- and high-risk individuals effectively reduce the benefits of a targeted approach to containment.
John P. Ansah, Mr. Natan P. Epstein, and Valeriu Nalban
We develop an integrated epidemiological-macroeconomic model to analyze the interplay between the COVID-19 outbreak and economic activity, as a tool for capacity building purposes. We illustrate a workhorse framework that combines a rich epidemiological model with an economic block to shed light on the tradeoffs between saving lives and preserving economic outcomes under various mitigation policies and scenarios calibrated for emerging market and developing economies. In our benchmark setup, we link the effective contact frequency and labor supply decisions to the current state of the disease progression, allowing for relevant behavioral responses that introduce multiple feedback channels. We showcase the effects of various “smart” mitigation measures, e.g. improved quarantine capacity or targeted labor market restrictions, to alleviate the tradeoffs between health-related outcomes and economic activity, including in response to a second infection wave. The discovery of treatment or vaccine, and the possibility of temporary immunity for the recovered individuals are also considered. The model is further extended to a multisector framework to analyze the sectoral allocation effects of the COVID-19 shock.
Mr. Jeffrey R. Franks, Bertrand Gruss, Mr. Carlos Mulas-Granados, Manasa Patnam, and Mr. Sebastian Weber
European authorities introduced stringent lockdown measures in early 2020 to reduce the transmission of COVID-19. As the first wave of infection curves flattened and the outbreak appeared controlled, most countries started to reopen their economies albeit using diverse strategies. This paper introduces a novel daily database of sectoral reopening measures in Europe during the first-wave and documents that country plans differed significantly in terms of timing, pace, and sequencing of sectoral reopening measures. We then show that reopenings led to a recovery in mobility—a proxy for economic activity—but at the cost of somewhat higher infections. However, the experience with reopening reveals some original dimensions of this trade-off. First, the increase in COVID-19 infections after reopening appears less severe in fatality rates. Second, a given reopening step is associated with a worse reinfection outcome in countries that started reopening earlier on the infection curve or that opened all sectors at a fast pace in a relatively short time. Finally, while opening measures tend to have an amplification effect on subsequent cases when a large fraction of the economy is already open, this effect appears heterogenous across sectors.
Mrs. Jana Bricco, Florian Misch, and Alexandra Solovyeva
This paper examines the economic effects of policies to contain Covid-19, by extracting lessons from Sweden’s experience during the ‘Great Lockdown’. Sweden’s approach was less stringent and based more on social responsibility than legal obligations compared to European peers. First, we provide an account of Sweden’s strategy and the health outcomes. Second, drawing on a range of data sources and empirical findings, our analysis of the first Covid-19 wave indicates that a less stringent strategy can soften the economic impact initially. These benefits could be eroded subsequently, due to potentially higher infection rates and a prolonged pandemic, but in Sweden’s case, the evidence remains mixed in this regard, and it is premature to judge the outcome of Sweden’s containment strategy. In addition, the economic effects of the containment strategy also depend on social behavior, demographics and structural features of the economy, such as the degree of export orientation, reliance on global supply chains, and malleability to remote working.
Mr. Masahiro Nozaki, Kenichiro Kashiwase, and Ikuo Saito
Health spending has risen rapidly in Japan. We find two-thirds of the spending increase over 1990–2011 resulted from ageing, and the rest from excess cost growth. The spending level will rise further: ageing alone will raise it by 3½ percentage points of GDP over 2010–30, and excess cost growth at the rate observed over 1990–2011 will lead to an additional increase of 2–3 percentage points of GDP. This will require a sizable increase in government transfers. Japan can introduce micro- and macro-reforms to contain health spending, and financing options should be designed to enhance equity.
Despite the increasing interest in universal health care, little is known about the optimal way to finance, design, and implement it. This paper attempts to fill this gap by providing some general policy recommendations on this important issue. While most of the paper addresses the Eastern Caribbean Currency Union (ECCU) countries, its policy implications are applicable to any country. The paper finds that the best financing option is country-specific depending on a country’s economic, cultural, institutional, demographic and epidemiological characteristics, as well as political economy considerations. However, taxation should be the primary financing source. It also concludes that an appropriate and realistic benefit package would need to be designed to ensure the system’s financial viability. Regarding the optimal way to implement universal health care, certain preconditions are needed, including sound public administration, a small informal economy, and a transparent health financing system that builds social consensus.