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Federico Sturzenegger
''Should we Hibernate in a Lockdown?''
( 2020, Vol. 40 No.3 )
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
JEL: E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General
E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment: General (includes Measurement and Data)
Manuscript Received : May 17 2020 Manuscript Accepted : Aug 08 2020

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