High-Frequency Spending Responses to Government Transfer Payments
Findings from studies focusing on spending responses to various government transfer payments and tax changes have important implications for thinking about the efficacy of fiscal policy designed to stimulate the economy during recessions. The economic downturn associated with the COVID-19 pandemic was unique in that it originated from a public health shock—rather than an economic one—resulting in government-mandated restrictions on economic activity, changes in individual behavior, and substantial fiscal support. Restrictions on activity, especially early in the pandemic when the Coronavirus Aid, Relief, and Economic Security (CARES) Act fiscal stimulus payments were disbursed, likely affected individuals’ ability, desire, and need to spend the stimulus money. Studying the spending response to the CARES Act payments is therefore relevant for understanding the benefits of fiscal stimulus in response to a nontraditional economic downturn. This paper uses high-frequency, transaction-level payment-card data for a sample of lower-income, unbanked cardholders to examine consumers’ spending response to the stimulus payments. The data focus on a subset of the population that likely had a particular need for the stimulus monies. Unlike the data used by previous papers in the literature, the authors’ data allows them to study the MPC out of the stimulus payments while simultaneously controlling for spending out of non-stimulus income and tax refund payments.