Why Cash Transfers Are Good Policy in the COVID-19 Pandemic

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The COVID-19 pandemic has had an exceptionally large and negative impact on economic activity around the world. We show that cash transfers can be a useful policy tool during the pandemic. Cash transfers mitigate consumption inequality induced by the pandemic and provide incentives to individuals who are most negatively affected by lockdown policies to adhere to them.

Key findings:

  • Two important objectives of public policy during a pandemic are to induce social distancing by shutting down contact-intensive economic activities and mitigate the resulting surge in consumption inequality.
  • Cash transfers achieve both objectives for the COVID-19 pandemic. They encourage individuals with low savings to work less and shelter at home and also reduce consumption inequality.

JEL classification: E21, E62, H84

Key words: COVID-19 pandemic, cash transfers, stimulus payments, inequality

https://doi.org/10.29338/ph2020-04Off-site link

The Federal Reserve Bank of Atlanta's Policy Hub The authors would like to thank Fumio Hayashi, Hirotaka Inoue, John Robertson, and Toshitaka Sekine for helpful comments. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta, the Federal Reserve System or the Bank of Japan. Any remaining errors are the authors' responsibility. Sign up for email updates at frbatlanta.org/research/publications/policy-hub.