Economic Impact Payments and Household Spending During the Pandemic

Abstract

Households spent only a small fraction of their 2020 Economic Impact Payment (EIPs) within a couple of months of arrival, consistent with i) pandemic constraints on spending, ii) other pandemic programs and social insurance, and iii) the broader disbursement of the EIPs compared to the economic losses during the early stages of the pandemic. While these EIPs did not fill an urgent economic need for most households, the first round of EIPs did provide timely pandemic insurance to some households who were more exposed to the economic losses from the pandemic. Households with lower liquid wealth entering the pandemic and those less able to earn while working from home each raised consumption more following receipt of their EIP. While our measurement for later EIPs is not as reliable, our estimates suggest even less spending on average to the second and third rounds of EIPs. Our point estimates imply less short-term spending on average than in response to economic stimulus payments in 2001 or 2008. While our analysis lacks the power to measure longer-term spending effects, the lack of short-term spending contributed to strong household balance sheets as the direct economic effects of the pandemic on households waned.

The Art of Paradigm Maintenance: How the ‘Science of Monetary Policy’ tries to deal with the inflation of 2021-2023

“…Hence, Hobijn et al (2023) are careful, writing that "it is still too early to determine whether 22 Repeating the same story again and again does not render it true. Evidence provided by Ferguson and Storm (2023), Asdourian, Salwati, & Sheiner (2022) and Parker, Schild, Erhard, & Johnson (2022) shows that the surge in U.S. inflation was not caused by Biden's pandemic relief spending. The DSGE model of Benigno and Eggertson (2023) has been calibrated to generate the "stimulus causes inflation" story-and as with any algorithm, the GIGO principle applies here as well.…”

“…The negative output gap also means that it is wrong to claim that the increase in U.S. inflation was caused by rising personal consumption expenditure, funded by the various rounds of federal (and state-level) pandemic relief spending by the Biden administration. Evidence provided byFerguson and Storm (2023),Asdourian, Salwati, & Sheiner (2022) andParker, Schild, Erhard, & Johnson (2022) puts to bed claims that the surge in inflation has been caused by Biden's pandemic relief spending.…”

Myth and Reality in the Great Inflation Debate: Supply Shocks and Wealth Effects in a Multipolar World Economy

“…But from the second quarter of 2021 onwards, fiscal policy has been a drag on economic growth, driven by the waning effects of the pandemic relief spending (Figure 4), a rise in federal and state tax collections and declines in real federal, state and local purchases. It is obvious that the fiscal drag on U.S. economic growth This conclusion is confirmed by (Parker, Schild, Erhard, & Johnson, 2022), who used data from the Consumer Expenditure (CE) Interview Survey to estimate the impact on (non-durable) consumer spending of the three waves of Economic Impact Payments (EIPs) to American households. These authors find that households spent only a small fraction of their 2020 and January 2021 EIPs within a couple of months of arrival and for the third round of EIPs in March 2021, their estimates imply almost no spending response, not in the short and not in the longer run.…”

Does Unconditional Cash during Pregnancy Affect Infant Health?

“…Spending behavior also slightly changed over time. As the pandemic continued into 2021, the marginal propensity to consume the third EIP was lower than previous payments for all income groups (Parker et al, 2022a). Overall, the spending evidence points to the potential of the EIP payments in improving infant health outcomes by providing families with additional resources that they used to procure essential goods and services, as well as alleviating financial stressors, especially for low-income populations.…”

“…Higher-income households tended to save the EIP amounts and low-asset and low-income households were more likely to spend the first credit on essential items, such as food, rent, and utilities (Baker et al, 2020;Chetty et al, 2020;Cox et al, 2020;Parker et al, 2022b;Kochhar and Sechopoulos, 2020;Perez-Lopez and Bee, 2020). As the pandemic continued into 2021, the marginal propensity to consume the third payments fell for households across the asset distribution (Parker et al, 2022a).…”