Impact of Stay-at-home-orders and Cost-of-living on Stimulus Response: Evidence from the CARES Act

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 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. We estimate between 0.29 (excluding banking) and 0.51 (all spend) of the rebate is spent within a 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 workplace mobility) MPC estimates are approximately 60% higher. We reanalyze data from previous fiscal initiatives (2001 tax rebates and the 2008 fiscal stimulus) and find similar geographical differences. 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.

Keywords: Stimulus, Consumption, MPC, COVID, CARES Act