Working Paper: NBER ID: w27097
Authors: Scott R. Baker; R. A. Farrokhnia; Steffen Meyer; Michaela Pagel; Constantine Yannelis
Abstract: The 2020 CARES Act directed large cash payments to households. We analyze house-holds’ spending responses using high-frequency transaction data from a Fintech non-profit, exploring heterogeneity by income levels, recent income declines, and liquidity as well as linked survey responses about economic expectations. Households respond rapidly to the re-ceipt of stimulus payments, with spending increasing by $0.25-$0.40 per dollar of stimulus during the first weeks. Households with lower incomes, greater income drops, and lower lev-els of liquidity display stronger responses highlighting the importance of targeting. Liquidity plays the most important role, with no significant spending response for households with large checking account balances. Households that expect employment losses and benefit cuts dis-play weaker responses to the stimulus. Relative to the effects of previous economic stimulus programs in 2001 and 2008, we see faster effects, smaller increases in durables spending, larger increases in spending on food, and substantial increases in payments like rents, mortgages, and credit cards reflecting a short-term debt overhang. We formally show that these differences can make direct payments less effective in stimulating aggregate consumption.
Keywords: household finance; cares; consumption; covid19; stimulus; mpc; transaction data
JEL Codes: D14; E21; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stimulus payments (J33) | Household spending (D19) |
| Lower income (D31) | Stronger spending response to stimulus payments (H39) |
| Greater income drops (D31) | Stronger spending response to stimulus payments (H39) |
| Lower levels of liquidity (G33) | Stronger spending response to stimulus payments (H39) |
| High liquidity (G19) | No significant spending response to stimulus payments (D19) |
| Expectations of employment loss (J63) | Weaker spending response to stimulus payments (D12) |
| Expectations of benefit cuts (H55) | Weaker spending response to stimulus payments (D12) |
| Targeting liquidity (G19) | Larger impacts on consumption and fiscal multipliers (E62) |
| Household spending (D19) | Effectiveness of direct payments in stimulating aggregate consumption (F62) |