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


Abstract: In response to the ongoing COVID-19 pandemic, the US government brought about a collection of fiscal stimulus measures: the 2020 CARES Act. Among other provisions, this Act directed cash payments to households. We analyze households' spending responses using high-frequency transaction data. We also explore heterogeneity by income levels, recent income declines, and liquidity. We find that households respond rapidly to receipt of stimulus payments, with spending increasing by \$0.25-\$0.35 per dollar of stimulus during the first 10 days. Households with lower incomes, greater income drops, and lower levels of liquidity display stronger responses. Liquidity plays the most important role, with no observed spending response for households with high levels of bank account balances. Relative to the effects of previous economic stimulus programs in 2001 and 2008, we see much smaller increases in durables spending and larger increases in spending on food, likely reflecting the impact of shelter-in-place orders and supply disruptions. We hope that our results inform the current debate about appropriate policy measures.




Scott Baker, Constantine Yannelis, Michaela Pagel, RA Farrokhnia, Steffen Meyer

Date Published



Baker, Scott, Constantine Yannelis, Michaela Pagel, RA Farrokhnia, and Steffen Meyer. 2023. Income, Liquidity, and the Consumption Response to the 2020 Economic Stimulus Payments. Review of Finance.


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