Compensating for Negative Economic Impacts of COVID-19 : Short-term Cash-Transfer Measures to Households and Firms in Seoul's Economy, South Korea

Abstract

This paper employs a Spatial Computable General Equilibrium model spanning 50 urban clusters to investigate the economic fallout of Seoul's social distancing policies, while identifying effective cash transfer strategies to cushion these impacts targeting different groups (households or firms) and types of subsidy distribution (loss-based or employment-based).The imposition of social distancing measures corresponded with a 6.48% decrease in Seoul's Gross Regional Product (GRP), a downturn that could be counteracted with targeted cash transfers to firms, on the basis of employee numbers or economic losses (around 6.42~6.43% of GRP). This approach is more beneficial than direct cash transfers to households (6.58% of GRP) as it allows for subsidies proportional to losses endured by regional firms. Yet, such measures may not fully alleviate the negative economic implications of Seoul's policies on the national economy (6.74% of GRP). Given that these economic costs are primarily incurred from production disturbances, it would be rational to implement short-term financial aid aimed at producers. However, due to difficulties in accurately estimating these losses, an employment-focused strategy emerges as a more practical policy solution.