Income, Liquidity, and the Consumption Response to the 2020 Economic Stimulus Payments

Scott R. Baker, Robert A. Farrokhnia, Steffen Meyer, Michaela Pagel*, Constantine Yannelis

*Corresponding author for this work

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

18 Citations (Scopus)

Abstract

The 2020 CARES Act directed large cash payments to households. We analyze households’ spending responses using data from a Fintech nonprofit, exploring heterogeneity by income, recent income declines, and liquidity as well as linked survey responses about economic expectations. Households respond rapidly to payments, with spending increasing by about $0.14 per dollar during the first week and plateauing around $0.25-$0.30 over 3months. In contrast to previous stimulus programs, we see little response of durables spending. Households with lower incomes, greater income declines, and less liquidity display stronger responses whereas households that expect employment losses and benefit cuts display weaker responses.

Original languageEnglish
JournalReview of Finance
Volume27
Issue6
Pages (from-to)2271-2304
Number of pages34
ISSN1572-3097
DOIs
Publication statusPublished - Nov 2023

Keywords

  • CARES
  • Consumption
  • COVID-19
  • Household finance
  • MPC
  • Stimulus
  • Survey data

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