Optimal Allocation of the COVID-19 Stimulus Checks
51 Pages Posted: 13 Sep 2020 Last revised: 8 Apr 2022
Date Written: September 11, 2020
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: Suggested Citation