Effects of January 2021 Stimulus Payments on Consumer Spending — Opportunity Insights (Chetty, Friedman, Stepner)

Summary

In this Opportunity Insights note, Raj Chetty, John Friedman and Michael Stepner use real-time card spending data from the Opportunity Insights Economic Tracker to assess the $600 stimulus payments under the COVID-Related Tax Relief Act of 2020. They find the payments significantly increased spending among lower-income households but had little effect among higher-income households. They estimate that households with incomes above $78,000 will spend only $45 of their $600 in the first month, much less than after the April payments, and project such households would spend only $105 of a $1400 check. The authors write that $200 billion of additional government spending would lead to only $15 billion of additional spending, and argue for targeting the next round toward lower-income households.

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Effects of January 2021 Stimulus Payments on Consumer Spending
Raj Chetty, John Friedman & Michael Stepner

We use real-time spending data from the Opportunity Insights Economic Tracker to assess the effects of the COVID-Related Tax Relief Act of 2020 stimulus payments on
consumer spending across different income groups. We find that the $600 stimulus checks increased spending among lower-income households significantly, but had
little impact on spending among higher-income households.1
DAILY CONSUMER SPENDING ON DEBIT AND CREDIT CARDS, PRE VS. POST $600 STIMULUS




                                    Data Source: Affinity Solutions

Over the first month after stimulus payments were received, our estimates imply that households with incomes above $78,000 will spend only $45 of the $600 payments
they received. This is much less than the effect of the April stimulus payments on the spending of these higher-income households, which arrived at a time when
unemployment was surging. Since then these households have largely returned to work, and have even accrued additional savings.

TOTAL MONTHLY SPENDING EFFECT OF FIRST AND SECOND STIMULUS PAYMENTS, BY HOUSEHOLD INCOME GROUP




                                    Data Source: Affinity Solutions and ACS. Since the April stimulus payments were $1,200 for most families, we halve the values in this chart in order to
                                    make them comparable to the per-dollar effects of the recent $600 stimulus payments.

Based on these results, we estimate that households earning more than $78,000 will spend only $105 of the $1400 stimulus check they receive - implying that $200
                                                                                                  2
billion of additional government expenditure will lead to only $15 billion of additional spending. Targeting the next round of stimulus payments toward lower-income
households would save substantial resources that could be used to support other programs, with minimal impact on economic activity.

A technical appendix for this analysis can be found on the Opportunity Insights website as well as more analysis on the economic effects of the COVID-19 pandemic.

1. Low- and high-income households are defined as those residing in zip codes with average household incomes below $46,000 and above $78,000 respectively.
2. This figure is calculated based on reduced spending among multi-person households with incomes greater than $78,000 and single-headed households with incomes greater than $50,000 respectively.


ABOUT OPPORTUNITY INSIGHTS
Opportunity Insights is a non-partisan, not-for-profit organization located at Harvard University that seeks to translate insights from rigorous, scientific research to policy change by harnessing
the power of “big data” using an interdisciplinary approach.

Requests for additional information on the data or technical questions can be directed to info@opportunityinsights.org.                                                                               Updated as of February 4th, 2021


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