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Heterogeneity and macroeconomic state dependence in the spending response to stimulus

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  • Jeon, Woongchan
  • Walsh, Kieran James

Abstract

We explore how households’ stimulus spending varies by income under different macroeconomic conditions over 2020–2021. We document a shift in the spending distribution from a declining pattern with a high average spending response to a U-shaped one with weaker responses and spending rising with income over much of the distribution. We argue that during crisis times like 2020, binding liquidity constraints render poorer households anxious to consume, while in more normalized economies (2021), they prioritize saving or servicing debts.

Suggested Citation

  • Jeon, Woongchan & Walsh, Kieran James, 2025. "Heterogeneity and macroeconomic state dependence in the spending response to stimulus," Economics Letters, Elsevier, vol. 247(C).
    • Handle: RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176524006013
    DOI: 10.1016/j.econlet.2024.112117
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    References listed on IDEAS

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    1. Miranda-Pinto, Jorge & Murphy, Daniel & Walsh, Kieran James & Young, Eric R., 2023. "Saving constraints, inequality, and the credit market response to fiscal stimulus," European Economic Review, Elsevier, vol. 151(C).
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    More about this item

    Keywords

    Marginal propensity to consume; Stimulus payments;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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