COVID-19 and a trade-off between health and economics: an extended inoperability model for Italy

Purpose: The recent COVID-19 has obliged governments to enact large-scale policies to contain it. A topic of economic debate is the quantification of the impact that these policies can create in the economy, with the aim of activating regulatory mechanisms to minimize this impact. In this vein, this study aims to propose a quantification of the effects of the Italian government policy that blocks nonessential production activities. Design/methodology/approach: The authors use a multisectoral extended inoperability model on the social accounting matrix of Italy. The analysis identifies the pandemic’s impact on outputs, endogenous demands, value-added and disposable incomes of institutional sectors. Findings: The construction and real estate sectors revealed a significant contraction followed by the retail trade and hotel and catering services sectors. The output contraction further impacts the value-added generation, disposable income and final demand components. Originality/value: The current pandemic is alleged to have a greater impact than the epidemics of the past century, considering the present dimension of the world economy and the increasing interconnections between industries and institutions. In this scenario, it is challenging to safeguard not only human health and life but also the economy. Hence, there is a need to establish a trade-off between health and economics; and in this regard, the current study empirically quantifies the impact of health measures on the economy. The findings of this study help identify the sectors that are more prone to disaster effects and also present the structure of income circular flow in the Italian economy.