[Source: Proceedings of the National Academy of Sciences of the United States of America, full page: (LINK). Abstract, edited.]
Social distancing laws cause only small losses of economic activity during the COVID-19 pandemic in Scandinavia
Adam Sheridan, Asger Lau Andersen, Emil Toft Hansen, and Niels Johannesen
PNAS first published August 3, 2020 https://doi.org/10.1073/pnas.2010068117
Edited by Jose A. Scheinkman, Columbia University, New York, NY, and approved July 16, 2020 (received for review May 19, 2020)
Social distancing laws that restrict the activities of private businesses are often seen as sacrificing the economy to save lives from COVID-19. Indeed, many countries have experienced massive reductions in consumer spending around the time they began to shut down. We show that these restrictions are, in fact, responsible for only a small portion of the drop in consumer spending. This suggests that the virus itself is responsible for the majority of the economic damage. We find that social distancing laws may provide an economic benefit: the laws reduce the economic activity of the low-risk population and can thus protect those with the greatest risk of mortality from also bearing the greatest burden in terms of reduced spending.
This paper uses real-time transaction data from a large bank in Scandinavia to estimate the effect of social distancing laws on consumer spending in the coronavirus 2019 (COVID-19) pandemic. The analysis exploits a natural experiment to disentangle the effects of the virus and the laws aiming to contain it: Denmark and Sweden were similarly exposed to the pandemic but only Denmark imposed significant restrictions on social and economic activities. We estimate that aggregate spending dropped by around 25% (95% CI: 24 to 26%) in Sweden and, as a result of the shutdown, by 4 additional percentage points (95% CI: 3 to 5 percentage points [p.p.]) in Denmark. This suggests that most of the economic contraction is caused by the virus itself and occurs regardless of social distancing laws. The age gradient in the estimates suggests that social distancing reinforces the virus-induced drop in spending for low-health-risk individuals but attenuates it for high-risk individuals by lowering the overall prevalence of the virus in the society.
COVID-19 – consumer spending – social distancing – shutdown
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Author contributions: A.S., A.L.A., E.T.H., and N.J. designed research; A.S., A.L.A., E.T.H., and N.J. performed research; A.S. and E.T.H. analyzed data; and A.S., A.L.A., E.T.H., and N.J. wrote the paper.
The authors declare no competing interest.
This article is a PNAS Direct Submission.
This article contains supporting information online at https://www.pnas.org/lookup/suppl/doi:10.1073/pnas.2010068117/-/DCSupplemental.
Published under the PNAS license.
Keywords: SARS-CoV-2; COVID-19; Quarantine; Denmark; Sweden; Society.