Wealth, Race, and Consumption Smoothing of Typical Income Shocks

Ganong, Peter; Jones, Damon; Noel, Pascal; Greig, Fiona; Farrell, Diana; Wheat, Chris

doi:10.3386/w27552

Cited by 62 publications

(25 citation statements)

References 40 publications

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“…After assigning these stimulus payments to each adult, we estimate that the total cost of Covid-19 Economic Impact Payments will be $296 billion. This is in-line with the Joint Committee on Taxation's estimate of $293 billion, 11 and small discrepancies are to be expected because we rely on data from 2018 to estimate the cost of this 2020 program.…”

Section: Policy Counterfactualssupporting

confidence: 79%

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

Karger

Rajan

2020

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We identify 16,016 recipients of Covid-19 Economic Impact Payments in anonymized transaction-level debit card data from Facteus. We use an event study framework to show that in the two weeks following a sudden $1,200 payment from the IRS, consumers immediately increased spending by an average of $577, implying a marginal propensity to consume (MPC) of 48%. Consumer spending falls back to normal levels after two weeks. Stimulus recipients who live paycheck-to-paycheck spend 68% of the stimulus payment immediately, while recipients who save much of their monthly income spend 23% of the stimulus payment immediately. Consumer age and location are only marginally correlated with individual MPCs after controlling for each individual's pre-pandemic propensity to save. We use the 2018 American Community Survey to re-weight 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 payments to individuals will increase consumer spending by $138 billion (47% of total outlays). A stimulus bill of the same size targeted at individuals with the highest MPCs would have instead increased consumer spending by $201 billion (68% of total outlays).

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Section: Policy Counterfactualssupporting

confidence: 79%

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

Karger

Rajan

2020

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“…In other words, while the stimulus bill was means-tested, it will have almost the same effect on consumer spending as a policy that sends a payment to each adult in the United States, irrespective of income. 18 In Panel B of Table 1, we hold total consumer spending (instead of the cost of the stimulus bill) fixed and show that the same increase in consumer spending of $130 billion could have been achieved with a $246 billion bill by distributing the stimulus payment to only low-income individuals.…”

Section: Policy Counterfactualsmentioning

confidence: 99%

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

Karger

Rajan

2020

SSRN Journal

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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.

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“…Consistent with trends nationwide, the pandemic brought with it increased economic insecurity and difficulties accessing food. Compared to non-Hispanic whites, Blacks and Hispanic adults had greater increase in food insecurity between 2018–2020 [ 44 ], greater cuts in consumption due to loss of employment (50% higher cut for Blacks and 20% higher for Hispanic) [ 45 ], and lower percentages of people with enough liquid assets to cover two-months of rent [ 46 ]. Financial stress only added to participants’ risk of COVID transmission, as they are not able to avail themselves of certain prevention modalities (e.g., grocery delivery) or may have to carpool or take public transit.…”

Section: Discussionmentioning

confidence: 99%

COVID-19 and Systemic Racism Pandemics Impact Daily Life for Immigrant/Refugees, Minneapolis, USA

Hearst¹,

Ekwonye²,

Munala³

et al. 2021

Annals of Global Health

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Wealth, Race, and Consumption Smoothing of Typical Income Shocks

Cited by 62 publications

References 40 publications

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

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

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

COVID-19 and Systemic Racism Pandemics Impact Daily Life for Immigrant/Refugees, Minneapolis, USA

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