Households with low levels of liquidity spent about a third of their stimulus checks within the first two weeks, while households with ample liquidity spent approximately zero.

The 2020 CARES Act directed large cash payments to households. With policy-makers considering future stimulus programs, we work to analyze how household spending responded to the first checks using high-frequency transaction data from a FinTech nonprofit. Households respond rapidly to the receipt of stimulus payments, with spending increasing by $0.25-$0.30 per dollar of stimulus during the first weeks across a range of categories.

The authors also explore heterogeneity across households along dimensions like income levels, recent income declines, and liquidity. Households with lower incomes, greater income drops, and lower levels of liquidity display stronger responses, highlighting the importance of targeting when thinking about fiscal multipliers. Liquidity plays the most important role, with no observed spending response for households with high levels of bank account balances.

Relative to the effects of previous economic stimulus programs in 2001 and 2008, the authors see faster effects, smaller increases in durables spending, and larger increases in spending on food, likely reflecting the impact of shelter-in-place orders and supply disruptions. Additionally, they see substantial increases in payments like rents, mortgages, and credit cards reflecting a short-term debt overhang. The authors formally show that these differences can make direct payments less effective in stimulating aggregate consumption.

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