The three plans by Biden: effects on economic growth and income inequality

Abstract

The three budgetary plans under Biden’s presidency—the American Rescue Plan, the American Families Plan, and the American Job Plan–encompass a set of measures meant to expand investments, support production processes, stimulate private consumption, and protect the labor market through transfers, tax credits, production subsidies, and federal unemployment benefits. Thus, besides relieving the economic system, these plans aim to drastically reduce poverty. This study attempts to disentangle the direct, indirect, and induced economic effects generated by these plans in a well-defined time-lapse through a dynamic computable general equilibrium model based on the social accounting matrix for the US. This approach enables the simulation of shocks from both the demand and supply sides, as well as policies for income redistribution. The simulation scenarios’ results prove the plans’ effectiveness vis-à-vis economic growth and support to households, as well as the peculiar effects on income inequality.