The Effect of Fiscal Stimulus: Evidence from Covid-19

19 Pages Posted: 10 Aug 2020 Last revised: 21 Aug 2020

See all articles by Miguel Garza Casado

Miguel Garza Casado

University of Pennsylvania

Britta Glennon

Wharton School, University of Pennsylvania

Julia Lane

Wagner Graduate School of Public Service; Institute for the Study of Labor (IZA)

David McQuown

University of Chicago

Daniel P. Rich

Illinois State University - Department of Economics

Bruce A. Weinberg

Ohio State University (OSU) - Economics; Institute for the Study of Labor (IZA); National Bureau of Economic Research (NBER)

Date Written: August 2020

Abstract

Policymakers, faced with different options for replacing lost earnings, have had limited evidence to inform their decisions. The current economic crisis has highlighted the need for data that are local and timely so that different fiscal policy options on local economies can be more immediately evaluated. This paper provides a framework for evaluating real-time effects of fiscal policy on local economic activity using two new sources of near real-time data. The first data source is administrative records that provide universal, weekly, information on unemployment claimants. The second data source is transaction level data on economic activity that are available on a daily basis. We use shift-share approaches, combined with these two data sources and the novel cross-county variation in the incidence of the COVID-19 supplement to Unemployment Insurance to estimate the local impact of unemployment, earnings replacement, and their interaction on economic activity. We find that higher replacement rates lead to significantly more consumer spending – even with increases in the unemployment rate – consistent with the goal of the fiscal stimulus. Our estimates suggest that, based on the latest data, eliminating the Federal Pandemic Unemployment Compensation (FPUC) supplement would lead to a 44% decline in local spending. If the FPUC supplement is reduced to $200, resulting in a reduction of the replacement rate by 44%, spending would fall by 28%. Even if the FPUC supplement is reduced to $400, the replacement rate would fall by 29% and spending would fall by 12%. Because these data are available in every state, the approach can be used to inform decision making not just in this current crisis, but also in future recessions.

Suggested Citation

Garza Casado, Miguel and Glennon, Britta and Lane, Julia and McQuown, David and Rich, Daniel P. and Weinberg, Bruce A., The Effect of Fiscal Stimulus: Evidence from Covid-19 (August 2020). NBER Working Paper No. w27576, Available at SSRN: https://ssrn.com/abstract=3670468

Miguel Garza Casado (Contact Author)

University of Pennsylvania

Philadelphia, PA 19104
United States

Britta Glennon

Wharton School, University of Pennsylvania

3620 Locust Walk
SH-DH
Philadelphia, PA 19104
United States

HOME PAGE: http://brittaglennon.com

Julia Lane

Wagner Graduate School of Public Service ( email )

The Puck Building
295 Lafayette Street, Second Floor
New York, NY 10012
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org

David McQuown

University of Chicago

1101 East 58th Street
Chicago, IL 60637
United States

Daniel P. Rich

Illinois State University - Department of Economics ( email )

Normal, IL 61790-4200
United States
309-438-7647 (Phone)

HOME PAGE: http://www.econ.ilstu.edu/faculty/index.html

Bruce A. Weinberg

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
1945 N. High St.
Columbus, OH 43210-1172
United States
614-292-6701 (Phone)
614-292-3906 (Fax)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
60
Abstract Views
424
rank
399,702
PlumX Metrics