Fiscal Policy and COVID-19: Insights from a Quantitative Model

Abstract

T he ongoing COVID-19 outbreak and subsequent infection-control actions have disrupted economic activity across the globe. In response, fiscal authorities are designing and implementing stabilization packages to mitigate the effects of rising unemployment and business closures.1 In this essay, I describe the analysis in a recent working paper (Faria-e-Castro, 2020) that uses a macroeconomic model to think about the effects of some of these fiscal policies in the event of a pandemic. The model is used to evaluate the effects of five types of policies on household income and consumption. I find that increases in unemployment insurance (UI) most effectively mitigate the effect of a pandemic on household income.