The Aggregate Effects of Fiscal Stimulus: Evidence from the Covid-19 Unemployment Supplement

20 Pages Posted: 10 Aug 2020 Last revised: 21 Apr 2021

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

The current economic crisis has highlighted the need for data that are both timely and local so that the effects of fiscal policy options on local economies can be evaluated more immediately. This paper highlights the potential value of using two new sources of near real-time data to inform decisions about the appropriate stimulus approach to implement. 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 make use of discrete changes in stimulus payments to construct a framework for evaluating real-time effects of fiscal policy on local economic activity. In particular, we leverage cross-county and over-time variation in the relative size of the Federal Pandemic Unemployment Compensation (FPUC) COVID-19 supplement to Unemployment Insurance – from $0 to $600 to $300 between March and September 2020 - to estimate the local economic impact of unemployment, earnings replacement, and the interaction between the two. We find that higher earnings replacement rates lead to significantly more consumer spending, even with increases in the unemployment claimant rate, which is consistent with the goal of the fiscal stimulus.

Suggested Citation

Garza Casado, Miguel and Glennon, Britta and Lane, Julia and McQuown, David and Rich, Daniel P. and Weinberg, Bruce A., The Aggregate Effects of Fiscal Stimulus: Evidence from the Covid-19 Unemployment Supplement (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

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Philadelphia, PA 19104
United States

HOME PAGE: http://brittaglennon.com

Julia Lane

Wagner Graduate School of Public Service ( email )

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

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

David McQuown

University of Chicago

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Daniel P. Rich

Illinois State University - Department of Economics ( email )

Normal, IL 61790-4200
United States
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HOME PAGE: http://www.econ.ilstu.edu/faculty/index.html

Bruce A. Weinberg

Ohio State University (OSU) - Economics ( email )

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United States
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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)

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United States

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