Government Transfers and Consumer Spending among Households with Children during COVID-19 
In response to the spike in unemployment at the onset of the COVID-19 pandemic, the federal government implemented several large-scale cash-transfer programs. These included three rounds of economic impact payments for eligible households, the expanded Child Tax Credit, and expanded unemployment insurance. These transfers disproportionately benefited households with children, which in general have a higher vulnerability to labor market disruptions. This study examines the differential impact of these transfers on households with children relative to other household types due to differences in both access to transfers and marginal propensity to consume.
Key Findings
- During the first two years of the COVID-19 pandemic, total consumer spending grew disproportionately in Zip code areas with higher population shares of children.
- Compared with the pre-pandemic period, a 10 percentage point larger population share of children was associated with a 6.2 percent relative increase in total spending, on average, during the first two years of the pandemic.
- The spending gap was likely driven by both relative shifts in the marginal propensity to consume and excess government transfers available to households with children.
- The gap in essential spending between households with children and other types of households grew over time with the volume of excess government transfers targeting children.
- The gap in discretionary spending between households with children and other types of households widened sharply following the onset of the pandemic and grew only modestly in 2021 despite an increased availability of cash transfers for children. This discrepancy suggests that, besides income, pandemic-specific factors such as lockdown restrictions, school closures, and vaccine availability heavily influenced families’ discretionary spending decisions.
Implications
The study’s findings indicate that COVID-19–related government cash transfers were particularly effective at buffering the spending of households with children, preventing spending losses earlier in the pandemic and facilitating faster spending growth over time. Government transfers had a direct association with spending on household essentials, while non-income factors—pandemic-specific factors such as lockdown restrictions, school closures, and vaccine availability, for example—likely played a larger role in discretionary spending, as suggested by the weak association between the increased availability of government transfers for children and discretionary spending.
Abstract
Leveraging novel data on consumer credit and debit card spending by Zip code, this study examines how the impact of government transfers on economic well-being varied by household type during the COVID-19 pandemic. Our findings indicate that pandemic transfers disproportionately benefited households with children, buffering them from earnings losses at the pandemic’s start and sustaining spending growth over time. Household essential spending increased proportionally with the delivery of cash transfers, while discretionary spending was influenced more by pandemic-specific factors beyond household income. Our results also offer preliminary evidence that households with children had a higher marginal propensity to consume during the early stages of the pandemic. These findings highlight the efficacy of government transfers in safeguarding household consumption during a period of large-scale job loss.