Optimal Allocation of the COVID-19 Stimulus Checks

51 Pages Posted: 13 Sep 2020 Last revised: 8 Apr 2022

See all articles by Vegard M. Nygaard

Vegard M. Nygaard

University of Houston

Bent E. Sørensen

University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)

Fan Wang

University of Houston - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 11, 2020

Abstract

Congress spent $250B sending stimulus checks to individuals. Could the same stimulus have been achieved for less, assuming the government’s information is restricted to 2019 tax returns? Using a life-cycle consumption-saving model with heterogeneous consumers, we calculate the consumption responses to $100 increments of cash transfers by, e.g., marital status, income, and number of children. We find the optimal allocation under different constraints using a new algorithm that can rank an arbitrarily-large number of possible allocations. The optimal policy roughly doubles the amount for low-income and younger consumers and can achieve the same stimulus at almost half the cost.

Keywords: CARES Act, Heterogeneous Consumers, Propensity to consume, Stimulus Effect

JEL Classification: I38, C6, D15

Suggested Citation

Nygaard, Vegard M. and Sorensen, Bent E. and Wang, Fan, Optimal Allocation of the COVID-19 Stimulus Checks (September 11, 2020). Journal of Economic Dynamics and Control 138 (May 1, 2022): 104352. https://doi.org/10.1016/j.jedc.2022.104352, Available at SSRN: https://ssrn.com/abstract=3691091 or http://dx.doi.org/10.2139/ssrn.3691091

Vegard M. Nygaard

University of Houston ( email )

Houston, TX 77204-5882
United States

HOME PAGE: http://https://sites.google.com/site/vegardmokleivnygaard/

Bent E. Sorensen

University of Houston - Department of Economics ( email )

204 McElhinney Hall
Houston, TX 77204-5882
United States
713-743-3841 (Phone)
713-743-3798 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Fan Wang (Contact Author)

University of Houston - Department of Economics ( email )

Houston, TX 77204-5882
United States

HOME PAGE: http://fanwangecon.github.io

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