The short-term impacts of coronavirus quarantine in São Paulo: The health-economy trade-offs

Gori Maia, Alexandre; Marteleto, Leticia; Rodrigues, Cristina Guimarães; Sereno, Luiz Gustavo

We analyze the trade-offs between health and the economy during the period of social distancing in São Paulo, the state hardest hit by the COVID-19 pandemic in Brazil. We use longitudinal data with municipal-level information and check the robustness of our estimates to several sources of bias, including spatial dependence, reverse causality, and time-variant omitted variables. We use exogenous climate shocks as instruments for social distancing since people are more likely to stay home in wetter and colder periods. Our findings suggest that the health benefits of social distancing differ by levels of municipal development and may have vanished if the COVID-19 spread was not controlled in neighboring municipalities. In turn, we did not find evidence that municipalities with tougher social distancing performed worse economically. Our results also highlight that estimates that do not account for endogeneity may largely underestimate the benefits of social distancing on reducing the spread of COVID-19.