Fiscal Stimulus and Households’ Non-Durable Consumption Expenditures: Evidence from the 2009 Australian Nation Building and Jobs Plan

Abstract

In 2009 the Australian government delivered approximately $8 billion in direct payments to households. These payments were pre- announced and randomly allocated to households based on postal codes over a 5-week period. We exploit this random allocation to estimate the causal response of households' non-durable consumption expenditures to a transitory, anticipated income increase. Our main findings are that: (i) non-durable consumption expenditures did not react significantly during or after the one-time, pre-announced transfer; (ii) there is a small, albeit statistically significant increase in non-durable consumption expenditures at the time of the announcement of the fiscal stimulus.

Keywords: Fiscal Stimulus, Randomization, Transitory Income, Anticipation, Excess Sensitivity, Rational Expectations Permanent Income Hypothesis

JEL Classification: E62, E21, H31, D91