Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249719 
Year of Publication: 
2020
Series/Report no.: 
Texto para discussão No. 671
Publisher: 
Pontifícia Universidade Católica do Rio de Janeiro (PUC-Rio), Departamento de Economia, Rio de Janeiro
Abstract: 
The Covid-19 crisis has lead to a reduction in the demand and supply of sectors that produce goods that need social interaction to be produced or consumed. We interpret the Covid-19 shock as a shock that reduces utility stemming from 'social' goods in a two-sector economy with incomplete markets. We compare the advantages of lump-sum transfers versus a credit policy. For the same path of government debt, transfers are preferable when debt limits are tight, whereas credit policy is preferable when they are slack. A credit policy has the advantage of targeting fiscal resources toward agents that matter most for stabilizing demand. We illustrate this result with a calibrated model. We discuss various shortcomings and possible extensions to the model.
Subjects: 
Transfers
Credit Policy
Covid-19
JEL: 
E31
E41
E52
Document Type: 
Working Paper

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