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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:

  1. 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.
  2. 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

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