Who Spends Stimulus the Quickest?


Matt Steinglass has an interesting follow-up to his post on the effects of stimulus:

The average baseline recipients increased their total spending by 56.8% of the value of the check they received. Here's how the authors sum it all up:

The point estimates suggest that low-income households spent a much larger fraction of their payment on total expenditures relative to the typical (baseline middle-income) household. In absolute terms for total expenditures, of the three groups, only the response for the low-income households is statistically significant.

I think that "statistically significant" here means comparing the spending by people after they got their stimulus checks to the null sample of spending without any checks. As the authors note, the difference between spending by low-income recipients and spending by the average recipient was large at 77.5%, but with a standard error of 0.50 that difference wasn't quite statistically significant.

What's interesting, though, is that total spending by both low-income and high-income recipients increased more than total spending by average recipients. In other words, though it's not a statistically significant result, both poor people and rich people seem to have been more likely to spend their stimulus checks than average people were. The authors suggest that the main factor in propensity to spend may be liquidity: results also showed that homeowners were less likely to spend their checks than renters. One might hypothesise that you're most likely to spend stimulus money if you're really poor, but if you're sitting pretty you're still more likely to spend it than if you're underwater on your house or saddled with credit-card debt. This would suggest that from a stimulus point of view, the people we really ought to cut out of the tax-cut extension are not so much the wealthy as the middle-class. Tax cuts for income under $35,000 and over $75,000, but not in between. "So because you are lukewarm, and neither hot nor cold, I will spit you out." But somehow that doesn't sound iike a political winner, and anyway there are some social-justice concerns involved there.

This actually makes quite a lot of intuitive sense to me.  In a recession, the poor are liquidity-constrained--they have immediate needs, and will use the extra resources to cover them.  For the wealthy, the stimulus checks are not a large fraction of their income, so they may well get spent, the way you'd blow twenty bucks you find on the street on some minor treat.  But people in the middle are liable to use the checks to enhance their financial stability--i.e., they save the money.

As Steinglass notes, this finding is economically interesting, but politically useless. I doubt it will even result in a meaningful reduction in the number of people claiming that tax cuts for the rich get saved, while tax cuts for the middle class get spent.  The supply of such folk wisdom seems to be pretty inelastic.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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