Hey Big Spender: Modeling Household Consumption Response to Fiscal Stimulus in the United States During COVID-19

Abstract

I use an adapted heterogeneous agent life-cycle model to study the impact of the U.S. government's three major fiscal stimulus packages during the unique economic environment presented by COVID-19. The model allows the simulation of alternative stimulus scenarios with different check timing, amounts, and targeting to compare the predicted response with observed consumption. I find that low-income households spent a larger proportion of the stimulus given to them than middle and upper-income households. Additionally, consumption response varied depending on check timing and the amount given to households, even if the total stimulus remained the same. Low-income households had a stronger consumption response when given stimulus spread throughout the pandemic, while middle and upper-income households had a higher consumption response when given stimulus at the pandemic outset. Using these trends, I find that the U.S. government could have saved upwards of $200 billion while providing the same consumption response by targeting low-income households throughout the pandemic.