Should we Hibernate in a Lockdown?

Federico Sturzenegger ()
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Federico Sturzenegger: Universidad de San Andres

Economics Bulletin, 2020, vol. 40, issue 3, 2023-2033

Abstract: Discussion on the optimal response to lockdowns is just starting. In this note, we make a simple yet apparently ignored point. If a lockdown entails a reduction in the desire for consumption, attempts to smooth the income effect of the lockdown lead to welfare losses. The optimal response resembles hibernation whereas it is optimal to lower consumption while the lockdown persists. In a framework with public goods, the result suggests it may also be optimal to reduce non-essential public spending hand in hand with taxes.

Keywords: Lockdown; hibernation; consumption smoothing (search for similar items in EconPapers)
JEL-codes: E2 E6 (search for similar items in EconPapers)
Date: 2020-08-08
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