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. 2021 Sep 20;19(3):459–487. doi: 10.1007/s10888-021-09489-4

Distributional effects of macroeconomic shocks in real-time

A novel method applied to the COVID-19 crisis in Germany

Kerstin Bruckmeier 1, Andreas Peichl 2, Martin Popp 1, Jürgen Wiemers 1,✉, Timo Wollmershäuser 2
PMCID: PMC8452132  PMID: 34566543

Abstract

The highly dynamic nature of the COVID-19 crisis poses an unprecedented challenge to policy makers around the world to take appropriate income-stabilizing countermeasures. To properly design such policy measures, it is important to quantify their effects in real-time. However, data on the relevant outcomes at the micro level is usually only available with considerable time lags. In this paper, we propose a novel method to assess the distributional consequences of macroeconomic shocks and policy responses in real-time and provide the first application to Germany in the context of the COVID-19 pandemic. Specifically, our approach combines different economic models estimated on firm- and household-level data: a VAR-model for output expectations, a structural labor demand model, and a tax-benefit microsimulation model. Our findings show that as of September 2020 the COVID-19 shock translates into a noticeable reduction in gross labor income across the entire income distribution. However, the tax benefit system and discretionary policy responses to the crisis act as important income stabilizers, since the effect on the distribution of disposable household incomes turns progressive: the bottom two deciles actually gain income, the middle deciles are hardly affected, and only the upper deciles lose income.

Supplementary Information

The online version contains supplementary material available at 10.1007/s10888-021-09489-4.

Keywords: Income distribution, Inequality, Recession, COVID-19, Tax-benefit policies, Short-time work, Business survey, Labor demand, Microsimulation

Electronic supplementary material

Below is the link to the electronic supplementary material.

(PDF 231 KB) (231.9KB, pdf)

Funding

Open Access funding enabled and organized by Projekt DEAL.

Footnotes

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Contributor Information

Kerstin Bruckmeier, Email: kerstin.bruckmeier@iab.de.

Andreas Peichl, Email: peichl@econ.lmu.de.

Martin Popp, Email: martin.popp@iab.de.

Jürgen Wiemers, Email: juergen.wiemers@iab.de.

Timo Wollmershäuser, Email: wollmershaeuser@ifo.de.

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