The Role of Government under Pandemic Disease Conditions

Abstract

The purpose of this article is to understand the effect of the outbreak of infectious diseases on the economy and also to analysis the role of government under pandemic crisis conditions. For this purpose, a dynamic stochastic general equilibrium model is used. After calibrating the parameters based on the quarterly information of Iran's economy during the period of 1991-2016, in the baseline scenario, it is assumed that the government has no involvement in the economy; In other words, the government pursues a state of fiscal passivity and shows no fiscal reaction to the change in endogenous variables after the outbreak of pandemic disease. Subsequently, in other scenarios, the government reacts fiscally to the outbreak of the pandemic, given the different conditions of production and public liability. The results of the study of fiscally active scenarios compared to the state of fiscal passivity indicate that the effect of government expenditures shock as a standard deviation on macroeconomic variables under pandemic disease conditions, has led to much less feedback.