Vol. 153, Pages 105819
Highlights • Fighting a pandemic in poor countries may involve not just a trade-off between lives and livelihoods, but an even more horrible trade-off between lives lost due to the pandemic and lives lost through deprivation. • This trade-off implies that the optimal lockdown is less strict in poor countries, and the death burden during a pandemic higher. • Transfer payments help mitigate the trade-off between lives and lives, and limited fiscal space can have dramatic consequences during a pandemic. • Our theory is in line with existing evidence that we confirm through reduced-form regressions on the importance of poverty for policy, compliance, and deaths in a pandemic. • We analyze the political economics of fighting a pandemic and find that, ceteris paribus, governments that derive more of their support from poorer (richer) parts of society would opt for less (more) severe lockdowns and more (less) generous transfers.
Hausmann, Ricardo, and Ulrich Schetter. "Horrible trade-offs in a pandemic: Poverty, fiscal space, policy, and welfare." World Development 153 (May 2022): 105819.