Household Spending Responses to the Economic Impact Payments of 2020: Evidence from the Consumer Expenditure Survey

Abstract

Using the Consumer Expenditure Survey and variation in amount, receipt, and timing of receipt of Economic Impact Payments (EIPs) authorized by the CARES Act, this paper estimates that people spent less of their EIPs in the few months following arrival than in similar previous policy episodes and than estimated by existing studies using other types of data. Accounting for volatility during the pandemic and comparing the consumer spending behavior of broadly similar households, people spent roughly 10 percent (standard error 3.4) of their EIPs on non-durable goods and services in the three months of arrival, with little evidence of additional spending in the subsequent three months or on durable goods. People who report mostly spending their EIPs spent 14.3\% (3.7) of their EIPs compared to 5.9\% (8.3) and -1.6\% (5.0) for those who report mostly paying off debt and saving respectively. People with low liquid wealth and people receiving their EIPs on debit cards spent at higher rates: 21.7\% (6.4) and 36.8\% (24.6) respectively, with economically larger estimates for total spending.

Revisiting event study designs: robust and efficient estimation

“…A recent literature, in particular Parker et al (2013) and Broda and Parker (2014), estimates the marginal propensity to spend (MPX) out of the 2008 tax rebates. 48 The tax cuts varied across households in amount, method of disbursement, and timing.…”

“…Broda and Parker (2014, henceforth BP) use an event study design to examine the response of nondurable spending to tax rebate receipt. They leverage the quasi-experimental variation in the timing of the receipt, limiting their sample to households who report receiving the payment within 48 Earlier work by Johnson et al (2006) analyzes similar payments under The Economic Growth and Tax Relief Reconciliation Act of 2001, while a recent paper by Parker et al (2022) evaluates the Economic Impact Payments of 2020. The literature provides other estimates of the marginal propensity to spend using variation from lottery winners (e.g., Fagereng et al (2021)) or earnings shocks (e.g., Baker (2018) and Kueng (2018)).…”

“…We estimate the performance of various estimators at estimating the impulse response function of nondurable spending to tax rebate receipt using the same data as BP. While earlier work by Parker et al (2013) estimates the impulse responses using quarterly spending data from the Consumer Expenditure Survey, BP leverage more detailed data from the Nielsen Homescan Consumer Panel (NCP).…”

Stock Market Stimulus

“…Our findings are related to other studies of how investors spent their stimulus checks. Baker, Farrokhnia, Meyer, Pagel, and Yanellis (2020), Coibion, Gorodnichenko, andWeber (2020), andParker, Schild, Erhard, andJohnson (2022) carefully study consumption patterns.…”

Excess Savings and Twin Deficits: The Transmission of Fiscal Stimulus in Open Economies

“…Congressional Budget Office (2020) andIMF Fiscal Affairs Department (2021) show that fiscal deficits were largely used to finance furlough pay, extended unemployment insurance benefits, stimulus checks, and so on. Projections in IMF (2021) imply a permanent effect of these deficits on levels of debt/GDP.2 Coibion, Gorodnichenko and Weber (2020), Ganong, Greig, Liebeskind, Noel, Sullivan and Vavra (2021) andParker, Schild, Erhard and Johnson (2022) study MPCs from pandemic stimulus checks.3 See also New York Times, "Americans' Pandemic-Era 'Excess Savings' Are Dwindling for Many", December 7, 2021.…”