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

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

doi:10.1093/rof/rfad010

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

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

Research output: Contribution to journal › Article › peer-review

21 Scopus citations

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 language	English
Pages (from-to)	2271-2304
Number of pages	34
Journal	Review of Finance
Volume	27
Issue number	6
DOIs	https://doi.org/10.1093/rof/rfad010
State	Published - Nov 1 2023

Keywords

CARES
Consumption
COVID-19
Household finance
MPC
Stimulus
Survey data

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10.1093/rof/rfad010

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abstract = "The 2020 CARES Act directed large cash payments to households. We analyze households{\textquoteright} 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.",

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

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Keywords

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