Heterogeneity in the marginal propensity to consume: Evidence from Covid-19 stimulus payments

Arbeitspapier

We identify 16,016 recipients of Covid-19 Economic Impact Payments in anonymized transaction-level debit card data from Facteus. We use an event study framework to show that in the two weeks following a sudden $1,200 payment from the IRS, consumers immediately increased spending by an average of $577, implying a marginal propensity to consume (MPC) of 48%. Consumer spending falls back to normal levels after two weeks. Stimulus recipients who live paycheck-to-paycheck spend 68% of the stimulus payment immediately, while recipients who save much of their monthly income spend 23% of the stimulus payment immediately. Consumer age and location are only marginally correlated with individual MPCs after controlling for each individual's pre-pandemic propensity to save. We use the 2018 American Community Survey to re-weight our data to match the U.S. population. Ignoring equilibrium effects and assuming a constant MPC for each person, we estimate that the CARES Act's $296 billion of payments to individuals will increase consumer spending by $138 billion (47% of total outlays). A stimulus bill of the same size targeted at individuals with the highest MPCs would have instead increased consumer spending by $201 billion (68% of total outlays).

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2020-15

Classification and Topics

• Classification: Wirtschaft ; Microeconomic Policy: Formulation, Implementation, and Evaluation ; Consumer Economics: Empirical Analysis ; Macroeconomics: Consumption; Saving; Wealth
• Subject: Covid-19 ; stimulus payments ; high-frequency data ; marginal propensity to consume

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Karger, Ezra ; Rajan, Aastha
• Event: Veröffentlichung
• (who): Federal Reserve Bank of Chicago
• (where): Chicago, IL
• (when): 2020

Further information

• DOI: doi:10.21033/wp-2020-15
• Handle: http://hdl.handle.net/10419/230393
• Last update: 10.03.2025, 11:43 AM CET