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 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).

Keywords: Covid-19; CARES Act; high-frequency data; stimulus payments; marginal propensity to consume (search for similar items in EconPapers)
JEL-codes: D04 D12 E21 (search for similar items in EconPapers)
Pages: 37
Date: 2020-05-28
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Related works:
Working Paper: Heterogeneity in the Marginal Propensity to Consume: Evidence from Covid-19 Stimulus Payments (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhwp:88137

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DOI: 10.21033/wp-2020-15

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