The Covid-19 pandemic is a major test for governments around the world. We study the political consequences of (mis-)managing the Covid crisis by constructing a high-frequency dataset of government approval for 35 countries. In the first weeks after the outbreak, approval rates for incumbents increase strongly, consistent with a global â€œrally around the flagâ€ effect. Approval, however, drops again in countries where Covid cases continue to grow. This is especially true for governments that do not implement stringent policies to control the number of infections. Overall, the evidence suggests that loose pandemic policies are politically costly. Governments that placed more weight on health rather than short-term economic outcomes obtained higher approval.
Herrera, H, M Konradt, G Ordoñez and C Trebesch (2020), ‘Corona Politics: The cost of mismanaging pandemics‘, COVID Economics 50, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-50#392514_392926_390631
By focusing on the cost conditions at issuance, I find that not only the Covid-19 pandemic effects were different across bonds and firms at different stages, but also that the market composition was significantly affected, collapsing on investment-grade bonds, a segment in which the share of bonds eligible to the ECB corporate programmes strikingly increased from 15% to 40%. At the same time the high-yield segment shrunk to almost disappear at 4%. In addition to a market segmentation along the bond grade and the eligibility to the ECB programmes, another source of risk detected in the pricing mechanism is the weak resilience to pandemic: the premium requested is around 30 basis points and started to be priced only after the early containment actions taken by the national authorities. On the contrary, I do not find evidence supporting an increased risk for corporations headquartered in countries with a reduced fiscal space, nor the existence of a premium in favour of green bonds, which should be the backbone of a possible "green recovery".
Zaghini, A (2020), ‘Covid pandemic in the market: infected, immune and cured bonds‘, COVID Economics 50, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-50#392514_392926_390632
We use population-wide data from linked administrative registers to study the distributional pattern of mortality before and during the Covid-19 pandemic in Belgium. Excess mortality is only found among those aged 65 and over. For this group, we find a significant negative income gradient in excess mortality, with excess deaths in the bottom income decile more than twice as high as in the top income decile for both men and women. However, given the high inequality in mortality in normal times, the income gradient in all-cause mortality is only marginally steeper during the peak of the health crisis when expressed in relative terms. Leveraging our individual-level data, we gauge the robustness of our results for other socioeconomic factors and find that conclusions about the income gradient in excess mortality based on aggregate data can be misguided.
Decoster, A, T Minten and J Spinnewijn (2020), ‘The Income Gradient in Mortality during the Covid-19 Crisis: Evidence from Belgium‘, COVID Economics 50, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-50#392514_392926_390633
Managing the COVID-19 effectively requires a series of mitigating steps that change over time as function of external conditions and previous mitigating steps. Modeling this effectively requires a multi-disciplinary integrative approach that combines epidemiological, economic and social considerations within a unified modeling environment. Our research focuses on incorporating elements from classical utility theory in combination with control theory and machine learning to better model the dynamics of the non-linear trade-offs inherent in managing the pandemic. We postulate a theoretical formulation on how these tradeoffs can be modeled, and demonstrate empirical results to elucidate the limiting factors in finding efficient solutions.
Chen, Y, J Mostovoy, V Murty, J Roberts, L Seco and A Sokolov (2020), ‘Integrating Health and Economic Parameters to Optimize COVID-19 Mitigation Strategies‘, COVID Economics 50, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-50#392514_392926_390634
Using zip code-level data and nonparametric estimation, I present eight stylized facts on the US housing market in the COVID-19 era. Some aggregate results are: (1) growth rate of median housing price during the four months (April-August 2020) since the Federal Reserveâ€™s unprecedented monetary easing has accelerated faster than any four-month period in the lead-up to the 2007-09 global financial crisis; (2) the increase in housing demand in response to lower mortgage interest rates displays a structural break since March 2020 (housing demand has increased by much more than before). These results indicate either the existence of â€œfear of missing outâ€ or COVID-induced fundamental changes in household behavior. In terms of distributional evidence, I find that the increase of housing demand seems more pronounced among the two ends of the income distribution, possibly reflecting relaxed liquidity constraints at the lower end and speculative demand at the higher end. I also find that the developments in housing price, demand, and supply since April 2020 are similar across urban, suburban, and rural areas. The paper highlights the potential unintended consequences of COVID-fighting policies and calls for further studies of the driving forces of the empirical findings.
Zhao, Y (2020), ‘US Housing Market during COVID-19: Aggregate and Distributional Evidence‘, COVID Economics 50, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-50#392514_392926_390635
This paper studies the causal effect of local exposure to the COVID-19 on voting behavior and electoral outcomes using evidence from the regional elections held in Spain on July 12, 2020. Exploiting the variation in exposure to the COVID-19 and using a difference-in-differences identification strategy, we show that turnover was between and 2.2 and 3.3 percentage points lower in municipalities that experienced positive cases of COVID-19. However, we do not find evidence of changes in the vote shares to the incumbent parties at the regional or national levels. We further discuss fear as the potential mechanism driving our results.
Fernandez-Navia, T, E Polo-Muro and D Tercero-Lucas (2020), ‘Too Afraid to Vote? The Effects of COVID-19 on Voting Behaviour‘, COVID Economics 50, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-50#392514_392926_390636
This paper studies the effects of COVID-19 on voting turnout using as a case study an election that took place right after the peak of the first wave of the pandemic, the Basque Country regional elections. With the spread of COVID-19 there is a fear that in-person voting will spread the virus, which adds an additional burden to voters that is expected to decrease turnout. We confirm this hypothesis using a difference-in-difference model. We find that COVID-19 caused turnout to decrease by approximately 4.7% in municipalities affected by the virus compared to those that at the time of the election had not been affected by it. This effect on turnout is higher for municipalities affected also by deaths from coronavirus than when affected only by infected cases.
Artés, J, C Garcia, J Jiménez and M Vázquez-Carrero (2020), ‘Empirical Evidence of the Effects of COVID-19 on Voter Turnout‘, COVID Economics 50, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-50#392514_392926_390637