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

Ezra Karger () and Aastha Rajan

No WP-2020-15, Working Paper Series from Federal Reserve Bank of Chicago

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.

Keywords: Covid-19; stimulus payments; high-frequency data; marginal propensity to consume (search for similar items in EconPapers)
JEL-codes: D04 D12 E21 (search for similar items in EconPapers)
Pages: 53
Date: 2020-05-29, Revised 2021-02-21
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (9)

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Working Paper: Heterogeneity in the Marginal Propensity to Consume: Evidence from Covid-19 Stimulus Payments (2020)
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DOI: 10.21033/wp-2020-15

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