They Worked The Effects Of 1 400 Stimulus Checks

Summary

They Worked: The effects of $1,400 stimulus checks on families and the economy is a research policy brief by Claudia Sahm published by the Jain Family Institute in July 2021. The brief draws on a survey module fielded in the University of Michigan's Surveys of Consumers in May and June 2021 to assess how families used the $1,400 payments under the American Rescue Plan. It reports that 45% of respondents mostly paid off debt, 31% mostly increased savings and nearly one quarter mostly increased spending, and estimates that more than half of the $400 billion disbursed was spent. It also estimates the effects of the three rounds of checks, totaling $826 billion received through May 2021, on consumer spending growth. The brief closes with policy lessons and appendices on survey questions and estimation of macroeconomic effects.

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July 2021

They Worked: The
effects of $1,400
stimulus checks on
families and the
economy

Claudia Sahm is the author of this research policy brief. The Jain Family
Institute and the University of Michigan funded the survey module. Sahm
thanks Matthew Shapiro and Joel Slemrod for their contributions to the
survey design and prior collaborations; Alexander Jacobs, Stephen Nuñez,
Sidhya Balakrishnan, and Halah Ahmad provided excellent comments. All
opinions expressed here are the author’s.

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Assessing the Effects of $1,400 Checks

Contents
Executive Summary 3

Details of the Policy 6

How Families Used Their Stimulus Checks 7

Effect of Stimulus Checks on the Economy 12

Lessons from Stimulus Checks During Covid 16

Appendix A: Survey Questions 20

Appendix B: Estimation of Macroeconomic Effects

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Executive Summary
Over the course of the COVID-19 economic crisis, Congress has enacted about $5
trillion—one quarter of annual GDP—in fiscal relief. At the heart of this bold policy
response was “economic impact payments”, often referred to as “stimulus checks”, to
most families. My research brief argues—contrary to several prominent critics—that the
stimulus checks, including the most recent $1,400 payments under the American Rescue
Plan (the “Rescue Plan”), provided much-needed relief to millions of families and helped
bolster the economy at a critical juncture in the recovery.

My evidence-based brief draws on newly available data from the Surveys of Consumers at
the University of Michigan, known as the “Michigan Survey”, to assess the effect of the
final round of stimulus checks. I find that most families needed the checks and
many—even those with higher incomes—spent them quickly, helping reignite the
economic recovery after it stalled in the winter.

The stimulus checks represented real money for Americans—money that millions of
Americans needed as they grappled with the pandemic’s economic fallout. A family of four
(with two adults and two young children) received up to $11,400 from April 2020 to March
2021, equal to 17% of median household income in 2019 for all Americans and 25% for
Black and Hispanic families.

Figure 1.

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By comparison, stimulus checks in 2008 for a family of four represented only 3% of
median income before COVID-19, and arrived as a single check. This time, Congress acted
aggressively—first with the CARES Act and then two further large relief packages, all
within the first year of the crisis and each authorizing a separate stimulus check. Given
the faster recovery compared to 2008-9, we should conclude that larger amounts of direct
stimulus, provided to a higher percentage of Americans, are an effective, reliable way to
fight recessions. See Sahm (2019) for a summary of other supporting research. Still, it is
imperative that policymakers learn from the problems encountered in this year of
extraordinary economic intervention in order to deploy cash assistance even more
effectively during future downturns.

My brief is divided into three parts:

1. An analysis of my new survey investigating the third round of direct cash
assistance, that is: the $1,400 stimulus check. I find that the checks provided a
sizable boost to overall spending this spring and helped millions of families in
need. In short, stimulus checks worked. Nearly one quarter of families said they
“mostly” used their checks to increase their spending, and many other families
spent some portion of their checks. Taken together, more than half of the $400
billion disbursed was spent within a few months of receipt. Families who did not
use this assistance to increase their spending instead used it mostly to pay down
debt (45%) or increase their savings (31%). While those latter two uses did not
directly boost the aggregate demand, they did create a financial buffer and
reduced debt burdens. In addition, another 12% of families who initially saved or
paid off debt with their checks said they expected to spend the extra money at a
later date.

2. An analysis of the effects of all three rounds of stimulus on the larger economy.
The $826 billion in total stimulus received by families through May 2021 boosted
spending growth, especially in each month of receipt. My results reveal that the
$1,200 CARES Act checks added over 2 percentage points to the monthly percent
change in consumer spending in April 2020. In that month, inclusive of the
stimulus checks, spending plummeted nearly 13%—the largest monthly decline
during the COVID-19 recession. In addition to providing substantial support, the
checks came at exactly the right time to buffer the contraction and help stabilize
the economy. During the recovery, the $600 checks added 1 percentage points to
aggregate spending growth in January 2021, and the $1,400 checks added over 3
percentage points in March 2021.

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3. An inventory of key lessons from the overall stimulus effort. Congress spent
considerable time debating the size, scope, and timing of the stimulus checks,
time that might have been saved had there existed legislation, before the
recession, that tied checks to economic conditions. Before the pandemic, I
provided (2019) one such proposal in which the rise and then recovery in the
unemployment rate determines the timing and size of stimulus. Detaching this
cash relief from short-term political calculus would free up time for other urgent
policies and ensure money reaches families quickly and predictably.

In addition, Congress needs to improve its systems to deliver cash assistance to
families. They must learn from Treasury’s administrative failures, particularly in
reaching families who do not file taxes and for whom the federal government does
not normally have payment information.

Finally, policymakers must recognize, and embrace, the fact that people across
the political spectrum, according to multiple opinion polls, strongly favored the
$1,400 checks. Only one fifth of families said in the survey that they would have
preferred that the total cash assistance had been spread out in twelve equal
payments, instead of the large, irregular checks that Congress enacted. My prior
research (Sahm, Shapiro, and Slemrod, 2012) from the Great Recession also
shows that large one-time payments were more effective at boosting spending
than smaller, recurring payments.

My brief’s arguments follow a short summary of the details of the stimulus.

Details of the Policy
The $1,400 stimulus checks in the Rescue Plan were the third direct payments that all but
the highest-income households received during the COVID-19 crisis. The CARES Act
checks reached households in the spring of 2020 when the economy was in free-fall and
millions of workers were losing their jobs each week. Then, around the turn of the year,
with economic recovery stalled and COVID-19 cases surging again, families received a
second check. The final check in spring 2021 came as the economy began to rebound
again—thanks in part to the growing availability of vaccines. While each payment arrived
during a distinct moment of the crisis, each round provided unambiguous relief and
helped boost overall spending.

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Figure 2.

The size of and eligibility for the stimulus checks during the COVID-19 crisis were
dramatically larger than during the 2001 and 2008 recessions.1 The Joint Committee on
Taxation estimated that the three rounds of checks would total nearly $1 trillion (2020a,
2020b, 2021), eight times the size of the 2008 stimulus payments ($115 billion) and three
times that era’s broad-based aid to families, which in addition to 2008 checks included the
2009-10 Making Work Pay Tax Credit ($116 billion) and the 2011-12 payroll tax cut.($112
billion).

Most families received their stimulus checks notably faster than during the Great
Recession. The first electronic payments of the CARES Act checks were disbursed 14

1
Under the CARES Act, adults (except those with income over $75,000 or without a Social Security Number)
received the full $1,200 and their children, if under age 17, received $500. Any adult children (such as high
school seniors or college students) or other adult dependents (such as disabled adults or elderly parents)
claimed on the tax filing of the adult recipients received nothing. Though the $600 stimulus checks had the
same eligibility requirements as the CARES Act checks, every eligible recipient, adult or young child, received
$600. The stimulus checks in the American Rescue Plan were $1,400 for each person, adult or child, and for
the first time they extended eligibility to adult children and other adult dependents. In 2001 and 2008, the
amounts were much smaller and the eligibility was narrower. Specifically, the stimulus checks in 2001 were
$300 per adult tax filer only, with no money for dependent children or non-tax filers. The 2008 checks were
$600 per adult tax filer or recipient of Social Security or Railroad Retirement benefits, and with $300 per
child.

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business days after the program was enacted. The second two rounds were even faster:
two business days and four business days, respectively.

How Families Used Their
Stimulus Checks
Though a secondary consideration among some economists and political commentators,
the main criterion by which any stimulus package should be judged in a recession or
recovery is simple: did it support families? To answer this question, the Survey Research
Center at the University of Michigan, with funding from the Jain Family Institute and the
University of Michigan , fielded a new module (see Appendix A) in its regular Surveys of
Consumers that asked recipients directly how the third round of stimulus affected their
financial situation.

The Michigan Survey, as it is known, is a nationally representative survey that began in
the 1950s and includes about 500 telephone respondents each month. The survey is
widely used to track consumer sentiment and used as a leading economic indicator. This
most recent module, fielded in May and June 2021, is comparable to prior surveys about
the $1,200 CARES checks as well as those from 2001 and 2008.

With regards to the $1,400 checks, families were asked:

“Because of legislation enacted this March, most families will receive a stimulus
payment of fourteen hundred dollars for individuals, twenty-eight hundred dollars
for couples, and fourteen hundred dollars for each child and adult dependent. We
want to understand how the stimulus payment will change decisions you would
have made without the additional money.

Thinking about your (family’s) financial situation this year, will the payment lead
you mostly to increase spending, mostly to increase saving, or mostly to pay off
debt?”

The largest group of respondents (45%) reported mostly paying off debt, including credit
cards, rent, and mortgage payments. Moreover, the families most likely to pay down debt
were those hardest hit by COVID-19’s economic fallout: those who lost income or who,

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lacking a meaningful financial buffer, typically cut their spending to cover unexpected
expenses. For these families, the extra money provided much-needed financial security.

Table 1.

The ability to pay off debt is especially important in a recession. So it is encouraging that,
after thousands of dollars in stimulus, the fraction of overall income that families used to
make regular payments on their debt did not increase, according to the Federal Reserve.
Amidst a severe recession, one might have expected families to borrow more to make ends
meet, in turn—even with the decline in interest rates—increasing their monthly debt
payments. That was the case in the Great Recession when the payments that all families,
in total, made on their mortgages, credit cards, and other consumer loans rose by 1.4%. By
contrast, such payments have so far fallen by 1% since the onset of COVID-19. Expanded
and more generous stimulus almost certainly contributed to this lessening in financial
stress.

In the survey, the next largest group (31%) were the families who said they mostly used
their checks to increase their savings. Prior to COVID-19, even with the national
unemployment rate under 4%, less than one third of working families could cover six
months of expenses (Bhutta, Blair, Dettling, and Moore, 2020). Families of color had even
more precarious finances before the pandemic: only 14% of Black families and 10% of
Hispanic families could do the same. These researchers estimated that the stimulus
checks and enhanced jobless benefits in the CARES Act largely closed those gaps in 2020
and would allow nearly all families to cover six months of expenses. As a result,
households were able—in the face of an economy in freefall—to buffer much of their lost
income, whether from reduced hours or job loss. Millions now had sufficient income to do
the “wise” thing and contribute to a rainy day, or “precautionary savings” accounts,
something most had been unable to do in the past.

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Remarkably, soon after families began to receive the CARES Act payments, a greater
number reported being prepared for emergency expenses than had before COVID-19. In
July 2020, 73% of people said that they would handle an unexpected expense with cash,
savings, or a credit card paid off at the next bill. Per a Federal Reserve Survey, that is up
from 63% in fall 2019 and a mere 50% early in the recovery from the Great Recession.
(That percentage returned to its pre-crisis level by fall 2020.) Cash assistance during the
first phase of the COVID-19 crisis—both from the CARES Act and the extra $600 per week
many received in jobless benefits—did as much, if not more, than years of economic
expansion to prepare some families for unexpected expenses.

Finally, nearly one quarter of families mostly used their stimulus checks to increase their
spending relative to what it would have been without the extra money. After including the
families who spent some of their checks, I estimate that more than half of the $400 billion
in $1,400 checks was spent (See Appendix B for the calculation). Since many households
normally cut back on spending during recessions—either due to income loss or the fear of
income loss—stimulus checks helped soften the blow to aggregate demand.

The survey also found that those who spent their checks did so rapidly. Nearly one quarter
of respondents increased their spending within a few weeks of receipt and another half
within three months. Such a rapid response to additional income suggests that families
spent on items they needed but previously couldn’t afford. That implies a boost to
economic well-being as well as to spending. Families with thin financial buffers spent even
more quickly.
Table 2.

Among other notable findings:

● Though the fraction of families who mostly spent their stimulus payments
remained consistent across the CARES Act and Rescue Plan payments—and,

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indeed, stimulus payments in 2008—the composition of such spending changed
significantly. Far fewer recipients spent on vacation and leisure activities in the
crisis than in the Great Recession, owing to social distancing and other
precautions due to COVID-19 (Sahm, Shapiro, and Slemrod, 2020).
● Families used their stimulus checks in a variety of ways, not all of them
predictable. This should be seen as further evidence in support of near-universal
cash assistance as the preferred form of relief, allowing, as it does, families to
decide how to use the extra income. Given its lack of timely data on household
finances, any attempt by the government to pre-define “need” would likely have
reduced the effectiveness of the stimulus checks, in terms of relief to families and
the boost to the economy.
● The COVID-19 economic crisis hit some demographic groups harder than others,
with Black and Hispanic families (Spriggs 2021), Asian Americans (Kim and Lim,
2020), those without a college degree (Gould and Kandra, 2021), and parents
(Heggeness, et al. 2021) faring the worst. Each group experienced
higher-than-average unemployment rates. Parents, and mothers in particular,
were the most likely to leave the labor force altogether. Even after a year of cash
assistance, the survey responses indicate that these groups still likely fared worse
than before the crisis began.

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Figure 3.

● These hardest hit groups were even more likely to pay off debt with their stimulus
checks than other families. Two thirds of Black families said they would mostly
use their checks to pay off debt, 20 percentage points more than white families.
That may well pay dividends far beyond the recovery. By paying down debt now,
these families will face lower interest costs in future and experience greater
financial security. Black and Hispanic families would likely benefit the most, since
prior to the crisis, the median ratio of their debts to their income was 1.5 times
that of white families.

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Table 3.

My brief is the first study of the effects of the Rescue Plan’s $1,400 stimulus checks, and
its topline results on family finances are largely consistent with my findings from prior
Michigan Surveys about the prior stimulus checks, including the CARES, 2008, and 2001
checks (Shapiro and Slemrod, 2003a, 2003b, 2009; Sahm, Shapiro, and Slemrod, 2009,
2012, 2016). Moreover, the marginal propensity to spend out of the $1,400 checks of 0.6
(or $0.64 per dollar) in my study is in line with findings from other researchers who used
different methods to estimate the spending out of prior stimulus checks. See my earlier
brief for the Jain Family Institute (2021) for summaries of others’ prior research.

Effect of Stimulus Checks on the
Economy
The COVID-19 recession was by far the most severe in the United States since the Great
Depression. Within a month of the stay-at-home orders taking effect, the official estimates
from the Bureau of Labor Statistics of the unemployment rate jumped to nearly 15%. After
taking into account the millions who dropped out of the labor force as well as probable
undercounting due to the pandemic, the rate likely exceeded 20%. Low-wage workers in
the service industry and people of color endured even higher unemployment.

In early March 2020, it was clear that Congress needed to act decisively. The CARES Act,
passed only two weeks into the lockdown, was the largest fiscal relief package in U.S.
history, twice the size of the 2009 American Recovery and Reinvestment Act. The $1,200
stimulus checks delivered $216 billion to families in April, and families spent about half
this amount in short order. I estimate that the stimulus checks, on their own, boosted the
change in personal consumption expenditures by 2 percentage points in April 2020. (See

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Appendix B for the tabulations.) The cash assistance helped soften the blow of a massive
overall decline in spending.

Figure 4.

The effect of the stimulus checks on the growth in consumer spending was largest in the
month of receipt, even though families do not do all of their attendant spending in that
month. In fact, checks boost the level of spending for several months. But the
contributions to growth are the largest in the month of receipt since the direct boost to
spending is temporary; once the checks have been spent, the level of spending will
decrease, subtracting from growth.2 The CARES Act stimulus checks served their purpose
well by creating a burst of spending to counteract the freefall in demand caused by the
recession.

Absent stimulus, many of the individuals who lost income last year would have had no
choice but to cut back on spending in spring 2020. In fact, around the receipt of stimulus
checks fewer families reported difficulties covering their usual expenses (Center on
Budget and Policy Priorities, 2021). Spending support meant smaller declines in aggregate
demand, revenues for business owners, and employment than would otherwise have been
the case. Arriving as they did in April 2020, at the moment of swiftest economic

2
Subsequently, stimulus acts as a drag on growth, since growth depends on the change in the level
of spending and such rate of change declines after the first month. Over several months the
contributions to growth will add to zero, because the stimulus checks, as one-time payments, do
not on their own permanently raise the level of consumer spending. (Note that does not include any
feedback effects captured in the fiscal spending multiplier.)

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contraction, these payments injected money into the economy at the moment of greatest
need.

The second, smaller round of $600 stimulus checks enacted at the end of 2020 had a
smaller, albeit notable effect on consumer demand: boosting spending growth by 1
percentage point in January 2021. Spending growth that month was positive even without
stimulus, but that moment followed three months of weak consumer spending; at that
point, the economy still had almost 10 million fewer jobs than before the onset of
COVID-19. The third round of $1,400 checks reached families in March and boosted
spending growth by 3 percentage points.

Some economists like Larry Summers and Olivier Blanchard, alleging pent-up demand,
argued before the passage of the Rescue Plan that a third round of checks was not
necessary. In a brief earlier this year (2021), I argued these fears were overblown and that,
moreover, the risks over the longer term of Congress “doing too much” were minimal. In
retrospect, one could argue Congress has done too little. Even with the nearly $2 trillion
Rescue Plan, 2.5 million in new jobs created in its wake, and a successful ongoing
vaccination drive, the U.S. economy had 6.8 million fewer jobs in June 2021 than in
February 2020. The recovery is far from complete and it is far from even. Black and
Hispanic workers, mothers, and those without a college degree remain even further
behind.

True, inflation rose, from historically low levels during the recession, more quickly than
expected and some employers did indeed face labor shortages as consumer demand
surged. Tradeoffs always exist in policy, and policymakers must focus on measures likely
to boost prosperity over the coming years, not just over the next few months. As discussed
in the next section, tying the timing, size, and frequency of stimulus checks to economic
conditions at the time, such as the level of unemployment prior to the recession, could
have better aligned supply and demand. However, temporary bottlenecks—from staggered
re-opening, limited access to childcare, and disruptions in the global supply chain—should
not justify shortchanging relief for American families. Any negative ramifications from
temporarily higher inflation pales in comparison to the positive effects of the additional
relief: in the three months after passage of the Rescue Plan, payroll employment rose over
½ million per month, on average—the fastest pace since summer 2020.

Another common argument in early 2021 held that any further stimulus checks should be
targeted more tightly towards lower-income families. Raj Chetty and co-authors, having
made preliminary estimates that families with incomes greater than $78,000 spent nearly
nothing out of their $600 checks, argued that omitting them from a third round of
stimulus would reduce costs without sacrificing any boost to the economy. As I have

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maintained elsewhere, their findings were at odds with years of research showing that
income was not a reliable predictor of spending (Sahm, 2021). Moreover, many families
still needed financial assistance. Though in the end the Rescue Plan retained the income
thresholds from the prior rounds of stimulus ($75,000 for adults; $100,000 per couple),
the policy debate over targeting sparked heated discussion.

My analysis of the Michigan Survey offers a first opportunity to assess this debate. I find
that the $1,400 checks did, in fact, boost the spending of many higher-income families.
About 27% of couples with income between $100,000 and $150,00 mostly spent the $1,400
checks, similar (29%) to those with income from $50,000 to $100,000. The lowest income
couples were in fact the least likely to raise their spending (13%), and instead were most
likely to pay off debt (66%).

Table 4.

While the direct boost to growth from the stimulus checks is temporary, one-time cash
assistance often creates a positive feedback loop that further amplifies spending. Extra
spending raises aggregate demand, allowing business owners to re-hire more workers; the
income of those workers, in turn, encourages more spending. (This feedback loop is often
referred to as the “fiscal multiplier.”) The magnitude of those indirect, dynamic effects on
GDP from the $1,400 stimulus checks is beyond the scope of this study; however, prior
research from Auerbach and Gorodnichenko, 2012 finds that they are four times as large
in a recession as in an expansion.

A strong recovery is important to avoid scarring, especially among long-term unemployed
workers. An unprecedented level of federal government spending during this crisis
contributed to a much more rapid, and more equitable, recovery than after the Great
Recession. For example, the Black unemployment rate in June 2021 was 3 percentage
points above its pre-crisis level, whereas at the end of 2012 it was still 5 percentage points

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above its level prior to the Great Recession. A faster recovery is a better recovery for
workers, especially those often marginalized in the labor market.

A faster, more equitable recovery also sets the stage for inclusive economic growth in the
future. We know what happens without it. After the Great Recession, income inequality in
the United States rose dramatically—with the total income of the top 10% rising by $2.5
trillion, equivalent to the increase in the bottom 80% combined. The massive federal aid
during the past year kept income more stable in order to limit the damage to family
finances. A strong recovery now also puts the economy on firmer footing for structural
reforms, as in President Biden’s American Jobs and Families Plans.

Figure 5.

While the medium-term effect on inequality from the relief during this crisis remains to
be seen, my results show that the $1 trillion in stimulus checks clearly achieved its
immediate objectives: supporting families and speeding recovery of the economy.

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Lessons from Stimulus Checks
During Covid
We are far enough into the recovery to identify several key lessons relevant to future
recessions—and even in the implementation of non-emergency cash transfer policies. My
three main takeaways for policymakers are:

● Economic conditions, not politics should drive relief programs.
● Administrative systems for cash relief must be improved.
● Stimulus checks should remain a key tool in economic crises.

Economic conditions, not politics, should drive the program specifics.

Effective and popular though they were, the stimulus checks could nevertheless have been
sized and timed better. In retrospect, it is clear that political considerations took
precedence over people’s needs—inevitable, in policymaking, but potentially avoidable in
this instance. One solution would be to tie the size and timing of checks to economic
conditions. While $11,400 may have been a suitable amount, in total, for a family of four,
the largest checks should have come earlier in the crisis when the unemployment rate
was higher. The fact that such families received $5,600 in March 2021 when the official
unemployment rate was 6.0% versus $3,800 in April 2020 when it was 14.8% suggests that
the size could be better tailored to economic conditions. Likewise, taking politics out of the
equation could have led to better timing. The second and third checks came within three
months of each other in early 2021, but families received no checks in summer 2020
when unemployment was around 8%. Members of Congress, at that time, had heated
debates about whether they should “wait and see” or do more. A policy tied to economic
conditions, such as the unemployment rate, would have clearly called for further stimulus
to the American people in summer 2020.

The timing and size of such payments, and their attendant effects on price increases and
labor shortages in 2021, owed more to political vagaries than to any rational policy making
process. All the more reason, then, to pass legislation automatically triggering future
stimulus in response to particular economic conditions and deciding, in advance, key
details such as eligibility. Such an automatic stabilizer bill would, in turn, push the federal
government to improve its administrative system for payments and provide Congress
much-needed time to focus on other details during the next recession. Several such

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legislative proposals exist, and President Biden has endorsed the broad concept. Now is
the time, while the shortcomings of the COVID-19 stimulus loom large in the public
memory, to craft such a blueprint for effective future stimulus.

Administrative systems must be improved.

Congress charged the Internal Revenue Service with administering all three rounds of
stimulus checks. The speed and coverage of the delivery exceeded any of the other
COVID-19 relief programs and marked a dramatic improvement from prior recessions. Yet,
the federal government could undoubtedly improve its means of disbursement.

My main proposals are:

● Create a reliable database to assess eligibility and store payment information.
The IRS lacks timely information on income and family size, so it is hard to get
stimulus checks to everyone who is eligible, especially those who do not file taxes
or whose income fell sharply during the crisis.3
● Upgrade payment systems, so cash assistance gets to everyone quickly. Even
among tax filers, not everyone shares their bank account information with the
IRS. Paper checks were delayed due to capacity constraints and many people
threw away their government-issued debit cards, suspecting they were junk mail.
Mobile payments, among other tech solutions, could improve delivery.
● Build permanent tools to help people access and track their stimulus checks, as
well as work with community groups to build awareness. The Treasury built two
websites and contacted 9 million eligible non-filers to get their payment
information. They also worked with local community organizations, food banks,
and homeless shelters. However, these efforts were hastily organized and had
limited financial resources; millions never received their money.

Better administration is a necessity. If money fails to reach families then all prior
legislative effort has been in vain. During COVID-19, those least likely to receive
their—such as families with children in deep poverty who do not file taxes—were arguably
the most likely to need them. A system that can track such families more reliably will
boost the effectiveness of future stimulus programs, as well as other benefits programs
such as the expanded Child Tax Credit.

3
The IRS also worked with other federal agencies like the Social Security Administration and
Department of Veterans Affairs to gather information on their beneficiaries. In 2008, non-filers
among these beneficiaries had to file a special tax return to receive their stimulus checks, which
required costly outreach and delayed their checks. Dropping this requirement in 2020 sped up
delivery.

Stimulus checks should remain a key tool in economic crises.

In addition to being effective, the stimulus checks of the past year have been extremely
popular. For example, a Quinnipiac University Poll found that 78% of Americans approved
of a third-round stimulus check of $1,400. That was higher than the fraction (68%) who
were in favor of the Rescue Plan overall. Many argue the promise of further stimulus
helped decide the 2021 run-off senatorial elections in Georgia, during which the two
winning Democratic candidates endorsed another round of checks.

Contrary to some critics, stimulus checks are neither a political gimmick nor a giveaway.
They are a proven, effective way to provide relief to the vast majority of Americans in an
economic crisis. As a form of relief that reaches the majority of Americans, they command
deep public support—unlike something like extended unemployment insurance,
terminated prematurely by 26 Republican governors early in summer 2021.

Cash assistance during economic downturns has taken many forms in recent history:
one-time checks in 2008; consistent, smaller payments in 2009; tax credits in 2009-10
and payroll tax cuts in 2011-12. Sahm, Shapiro, and Slemrod (2012) find that repeated
payments in 2009 to 2012 boosted spending less than stimulus checks in 2008. My new
survey echoes such results in revealing that Americans preferred larger, more infrequent
checks. Only about one fifth of families said they would have preferred 12 monthly
payments of $267 over the three larger stimulus payments they received.

Figure 6.

When asked to explain why, respondents said things like: “At the time we received them
we needed it to live and a smaller payment would not have helped” and ”People want it
right away so they can pay things off.” Many Americans are inclined to use larger
payments for more expensive durable goods (e.g. used cars) or long-deferred repairs.
These kinds of purchases often exceed the value of the checks and so provide an extra
boost to aggregate spending. Moreover, the faster the allocated money reaches families, as
occurs with large checks, the faster the effect on the overall economy. Whether such
frequency remains preferred for other cash programs—such as the newly-expanded Child
Tax Credit— remains a question for future research.

In conclusion, the stimulus checks worked—and can work even better in the future, if the
lessons of the COVID-19 experiences are adequately applied. My findings from the
Surveys of Consumers and other data sources show that this cash assistance offered
necessary relief for millions of families. Many of the families who were hardest hit in the
crisis, and who had the thinnest financial buffers before the pandemic, used the checks to
pay off debt and create more financial security. Even though debt repayment was the most
common use for the checks, I estimate that more than half of the stimulus checks were
spent and most of that spending occurred within a few months of receipt. As a result, the
stimulus checks boosted aggregate spending noticeably in the month of receipt and in
subsequent months. Finally, while the delivery and design of the stimulus checks should

be improved, their effectiveness and broad popularity should be ample evidence for
policymakers to use this form of cash assistance in future recessions.

Appendix A: Survey Questions
R1. Because of legislation enacted this March, most families will receive a stimulus
payment of fourteen hundred dollars for individuals, twenty-eight hundred dollars for
couples, and fourteen hundred dollars for each child and adult dependent.

Have you (or your family living there) received this payment?
1. Yes
5. No
8. DK
9. NA

R2. Do you expect to receive this payment?
1. Yes
5. No
8. DK
9. NA

R3. We want to understand how the stimulus payment will change decisions you would
have made without the additional money. Thinking about your (family’s) financial
situation this year, will the payment lead you mostly to increase spending, mostly to
increase saving, or mostly to pay off debt?
1. Increase Spending
2. Increase Saving
3. Pay Off Debt
4. Give to Charity
5. Give to Friends or Family
6. Already Increased Spending
8. DK
9. NA

R4a. Do you plan to keep your savings higher until the end of this year? Or do you plan to
spend the payment later this year?
1. Keep Savings Higher
2. Spend Later This Year

8. DK
9. NA

R4b. Do you plan to keep your debt paid off until the end of this year? Or do you plan to
spend the payment later this year?
1. Keep Debt Paid Off
2. Spend Later This Year
8. DK
9. NA

R5a. On what, specifically, will you spend this additional money?

R6a. What debt, specifically, will you pay off with this additional money?

R7. Did you (or will you) spend most of your payment within a few weeks of receiving it,
within one to three months, or more than three months later?
1. Within a Few Weeks of Receipt
2. Within 1-3 Months
3. More Than Three Months Later
4. Before Receipt
5. After Coronavirus Crisis
8. DK
9. NA

R9. How much money in total did you (your family) receive?

R10. Because of the coronavirus crisis, has your (your family’s) income declined?
1. Yes
5. No
8. DK
9. NA

RA33. If (you/your family) had an unexpected expense, such as a one-time car repair,
would you pay for it mostly by taking money out of savings, mostly by cutting back on
other spending, or mostly by using credit or borrowing?
1. Out of savings
2. Cut other spending
3. Credit or borrowing
8. DK
9. NA

RA41. Since the crisis began, most adults have received three stimulus payments: twelve
hundred dollars last spring, six hundred dollars this winter, and fourteen hundred dollars
recently. In total, that’s thirty-two hundred dollars per adult.

Would you have preferred to receive the same total amount in twelve equal monthly
payments of two hundred and sixty-seven dollars?
1. Yes
5. No
6. Indifferent
8. DK
9. NA

RA41b. Why do you say so?

Appendix B: Estimation of
Macroeconomic Effects
The survey responses tell us how many respondents “mostly” spent their stimulus checks.
They do not tell us directly how many dollars were spent. The fraction of the stimulus
checks that people spend—referred to as the “marginal propensity to consume”—is key to
the analysis of macroeconomic effects. The higher the MPC and the faster the spending
out of the checks occurs, the larger the immediate, direct boost to the economy. A study
by Jonathan Parker and Nick Souleles (2019), using the Consumer Expenditure Survey,
allows us to translate the Michigan Survey responses on how people “mostly'' use their
checks to an MPC. Specifically, they estimated what percent (column B, Table B-1) of the
stimulus checks of the 2008 stimulus checks that families spent depending on how they
said they would mostly use their extra money. Note, families who said “mostly spend” on
average spent more than their stimulus checks, since several used their checks as a
downpayment for a car or other expensive consumer durables. (This is why the MPC is
greater than one.) People who said they mostly save or pay off debt with their checks, also
spent some of it, though the MPCs are noticeably less than those who said “mostly
spend”. Applying the MPC from Parker and Souleles with my analysis of the survey
findings on how people used the $1,400 stimulus checks (column C, Table B-1), I estimate
that the aggregate MPC is 0.64, which is largely in line with other studies on prior
stimulus checks.

Table B-1.

The speed at which people spend their checks is also important for calculating
macroeconomic effects. I translate the categorical survey responses, such as “within a few
weeks,” into a percentage spent by month relative to receipt of the stimulus checks. For
example, I estimate that of the $0.64 per dollar spent over the next 7 months about $0.13
is spent during the month in which families receive their stimulus checks. The spending
per month tapers off to $0.06 in the seventh month.

Table B-2.

Finally, I apply my estimates of the MPC by month to aggregate statistics on income and
consumer spending during the crisis from the Bureau of Economic Analysis. The stimulus
checks boost the level of spending notably when the families begin to receive them. For
example, in April 2020, consumer spending was $348 billion higher (at an annual rate)
than it would have been without the checks. Spending continues to be higher than without
the checks for several months, but the largest increase occurs in the first month of the
program. As a result, the stimulus checks have the largest contribution to aggregate
spending growth in the first month. In April 2020, the stimulus checks added 2.5
percentage points to overall monthly growth. The boost to growth from the subsequent
checks was 1.5 percentage point in January 2021 and 3.6 percentage point in April 2021.

Table B-3.

It is important to note that my estimates of the macroeconomic effects rely on a number
of assumptions and calculations from my survey analysis, as well as other research and
data sources. Each of the steps in my estimates could add some measurement error and
imprecision. One should not view the estimates in Table B-3 as exact. The goal, instead, is
to get an approximate sense of how the size and timing of three rounds of stimulus checks
affected the macroeconomy.

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