Review of Finance Vol. 27 No. 6 2023

Income, Liquidity, and the Consumption Response to the 2020 Economic Stimulus Payments

Scott R. Baker¹; Robert A Farrokhnia²; Steffen Meyer³; Michaela Pagel⁴; Constantine Yannelis⁵

¹ Northwestern University, Kellogg, NBER , · ² Columbia Business School, Columbia Engineering School , · ³ Aarhus University and Danish Finance Institute (DFI) , · ⁴ Columbia Business School, NBER, and CEPR , · ⁵ University of Chicago , Booth School of Business; NBER

Abstract

The 2020 CARES Act directed large cash payments to households. We analyze households’ spending responses using data from a Fintech nonprofit, exploring heterogeneity by income, recent income declines, and liquidity as well as linked survey responses about economic expectations. Households respond rapidly to payments, with spending increasing by about $0.14 per dollar during the first week and plateauing around 0.25–0.30 over 3 months. In contrast to previous stimulus programs, we see little response of durables spending. Households with lower incomes, greater income declines, and less liquidity display stronger responses whereas households that expect employment losses and benefit cuts display weaker responses.

DOI

10.1093/rof/rfad010

Volume

27

Issue

6

Pages

2271-2304

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓