When the United States was hit by COVID-19, Congress passed the $ 2.2 trillion Coronavirus Aid, Relief, and Economic Security Act in an effort to mitigate the blow from widespread shutdowns and corporate shutdowns that led to rising unemployment.
The CARES law – which included one-time payments of $ 1,200 or more to households from April – boosted incomes and spurred spending as promised, even though the effect was uneven, according to research from Northwestern’s Scott R. BakerColumbias RA FarrokhniaUniversity of Southern Denmark Steffen MeyerColumbias Michaela Pageland Chicago Booth’s Constantine Yannelis. The researchers conducted an almost real-time review of how a significant portion of the population used the direct payments.
The stimulus led to an immediate, general increase in household spending, the researchers find, but households with cash on hand tended to store their stimulus checks, while those with no cash available spent nearly half of their checks within 10 days.
The researchers took advantage of recently available data from SaverLife, a nonprofit organization that helps families develop long-term savings habits. The SaverLife data provided detailed, high-frequency information, including daily inflows, outflows, and balances on anonymized individual bank accounts. This allowed researchers to analyze the impact of CARES payments on households, taking into account changes in overall income levels, cash flows and existing liquidity.
Using data on more than 6,000 U.S. households for April, the researchers calculated households’ marginal propensity to consume – the percentage of every dollar received that they spent from the moment they received CARES payments.
“We wanted to understand the multiplier effect of CARES payments – how when the government gives you one dollar, you use it and give another dollar, which then continues to use it, gives another one dollar, and so on,” he says. Yannelis. “This is how fiscal stimulus works, so one has to look at people’s marginal propensity to consume to assess the multiplier effect.”
Researchers are finding a sharp and immediate answer as payments began to hit bank accounts. Within the first 10 days, households spent an average of 29 cents of every dollar received. The majority of these expenditures were on food, rent and bills, most likely in response to on-site shelter directives and supply chain restrictions. The costs could not significantly benefit the restaurant, service and hospitality industries because they were largely shut down to slow the spread of the pandemic.