Heterogeneity in the Marginal Propensity to Consume: Evidence from Covid-19 Stimulus Payments

Abstract

We identify 22,461 recipients of Covid-19 Economic Impact Payments in anonymized transaction-level bank account data from Facteus. We use an event study framework to show that in the two weeks following a $1,200 stimulus payment in April 2020, consumers increased spending by $546, implying a marginal propensity to consume of 46%. Consumers used an additional 10% of the stimulus payment to pay off debt. Consumer spending fell to normal levels after two weeks. Stimulus recipients who live paycheckto-paycheck spent 60% of the stimulus payment within two weeks, while recipients who save much of their monthly income spent only 24% of the stimulus payment within two weeks. Spending patterns are quite similar for the second round of stimulus payments in January, 2021, with consumers spending 39% of their stimulus payments within two weeks and using an additional 14% of their payment to pay off debt. Reweighting our data to match the U.S. population, ignoring equilibrium effects, and assuming a constant MPC for each person, we estimate that the CARES Act's $296 billion of stimulus payments increased consumer spending by $130 billion (44% of total outlays) within two weeks of stimulus receipt. A stimulus bill targeted at individuals with the highest MPCs could have increased consumer spending and debt payments by the same amount at a cost of only $246 billion.

The Economic Impacts of COVID-19: Evidence from a New Public Database Built Using Private Sector Data

“…44 Both e↵ects are statistically significantly di↵erent from 0, as well as from each other. These findings are consistent with Baker et al (2020) and Karger and Rajan (2020), who use individual transaction data on incomes and spending patterns of approximately 15,000 primarily low-income individuals to estimate a large and immediate e↵ect of receiving the stimulus check on spending, especially among the very poorest households.…”

Changes in consumer behaviors and financial well-being during the coronavirus pandemic: results from the U.S. Household Pulse Survey

“…39 Panel A of Table 4 shows that these regression discontinuity estimates remain similar under varying bandwidths. These findings are consistent with contemporaneous work by Baker et al (2020) and Karger and Rajan (2020), who use individual transaction data on incomes and spending patterns of approximately 15,000 primarily low-income individuals to estimate a large and immediate effect of receiving a stimulus check on spending, especially among low-income households. Together, these results provide empirical support for models that generate excess sensitivity of consumption to anticipated temporary income shocks (e.g., Campbell andMankiw 1989, Kaplan andViolante 2014).…”

Initial Impacts of the Pandemic on Consumer Behavior: Evidence from Linked Income, Spending, and Savings Data

“…Reassuringly, these patterns are similar to those found using other aggregate sources of spending data. 4 , EarnestResearch (2020), Baker et al (2020), Chetty et al (accessed on 06/15/2020), Facteus (accessed on 06/15/2020) and Karger and Rajan (2020). However, this also implies that these results do not rely on the unique features of our micro data, so they are not the main contribution of our paper.…”

“…Our sample, which captures households across the income distribution, complements the work done using Facteus data (e.g. Karger and Rajan (2020), Alexander and Karger (2020)) and proprietary Fintech data (Baker et al (2020)) which is primarily focused on low-income households. Finally, the size of the Chase customer base allows for additional precision when calculating statistics of interest as well as for substantially more disaggregated data cuts, relative to data sets with smaller sample sizes.…”