Impact of the Cares Act Stimulus Payments on Consumption

Abstract

During the 2020 COVID-19 epidemic, the US Congress passed the CARES Act that (among other measures) provides direct payments to households. Using a large debit cards database, we analyze consumer expenditures following the stimulus payments. We observe Zip code level daily transactions (approx. 12 million debit cards) before and immediately following the disbursements of stimulus checks. Empirical analysis exploits geographical variation in timing of Federal deposits to identify marginal propensity to consume (MPC) for stimulus payments. Our results estimate about half of the rebate is spent within few days of receipt. We find large cross-sectional heterogeneity with MPC estimates that are three times higher in magnitude in the most densely populated urban areas with higher cost-of-living. In areas with more restricted movement during the pandemic (as measured by Google Mobility Index) MPC estimates are approximately 70\% higher. Previous literature analyzing the impact of stimulus or tax rebates has largely ignored these geographic differences, which have important policy implications. We reanalyze data from the 2001 tax rebates and the 2008 fiscal stimulus and replicate main findings reported in the paper. Collectively our results highlight an important shortcoming in fiscal policies that ignore local environment, particularly cross-sectional differences in cost-of-living across the United States.