Optimal allocations to heterogeneous agents with an application to stimulus checks

Sørensen, Bent E, Vegard Nygaard and Fan Wang
Authors registered in the RePEc Author Service: Bent E. Sorensen

No 15283, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A planner allocates discrete transfers of size D_g to N heterogeneous groups labeled g and has CES preferences over the resulting outcomes, H_g(D_g) . We derive a closed-form solution for optimally allocating a fixed budget subject to group-specific inequality constraints under the assumption that increments in the H_g functions are non-increasing. We illustrate our method by studying allocations of "support checks'' from the U.S. government to households during both the Great Recession and the COVID-19 pandemic. We compare the actual allocations to optimal ones under alternative constraints, assuming the government focused on stimulating aggregate consumption during the 2008-2009 crisis and focused on welfare during the 2020-2021 crisis. The inputs for this analysis are obtained from versions of a life-cycle model with heterogeneous households, which predicts household-type-specific consumption and welfare responses to tax rebates and cash transfers.

Keywords: Economic stimulus act; American rescue plan; Consumption inequality; Propensity to consume; Welfare inequality (search for similar items in EconPapers)
JEL-codes: C6 E21 I38 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-ore
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Citations: View citations in EconPapers (2)

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Journal Article: Optimal allocations to heterogeneous agents with an application to stimulus checks (2022)
Working Paper: Optimal allocations to heterogeneous agents with an application to stimulus checks (2022)
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