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The Aggregate Effects of Fiscal Stimulus: Evidence from the COVID-19 Unemployment Supplement

Author

Listed:
  • Miguel Garza Casado
  • Britta Glennon
  • Julia Lane
  • David McQuown
  • Daniel Rich
  • Bruce A. Weinberg

Abstract

The current economic crisis has highlighted the need for data that are both timely and local so that the effects of fiscal policy options on local economies can be evaluated more immediately. This paper highlights the potential value of using two new sources of near real-time data to inform decisions about the appropriate stimulus approach to implement. The first data source is administrative records that provide universal, weekly, information on unemployment claimants. The second data source is transaction level data on economic activity that are available on a daily basis. We make use of discrete changes in stimulus payments to construct a framework for evaluating real-time effects of fiscal policy on local economic activity. In particular, we leverage cross-county and over-time variation in the relative size of the Federal Pandemic Unemployment Compensation (FPUC) COVID-19 supplement to Unemployment Insurance – from $0 to $600 to $300 between March and September 2020 - to estimate the local economic impact of unemployment, earnings replacement, and the interaction between the two. We find that higher earnings replacement rates lead to significantly more consumer spending, even with increases in the unemployment claimant rate, which is consistent with the goal of the fiscal stimulus.

Suggested Citation

  • Miguel Garza Casado & Britta Glennon & Julia Lane & David McQuown & Daniel Rich & Bruce A. Weinberg, 2020. "The Aggregate Effects of Fiscal Stimulus: Evidence from the COVID-19 Unemployment Supplement," NBER Working Papers 27576, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27576
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    References listed on IDEAS

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    1. Christopher D. Carroll & Edmund Crawley & Jiri Slacalek & Matthew N. White, 2021. "Modeling the Consumption Response to the CARES Act," International Journal of Central Banking, International Journal of Central Banking, vol. 17(1), pages 107-141, March.
    2. Congressional Budget Office, 2020. "The Budget and Economic Outlook: 2020 to 2030," Reports 56020, Congressional Budget Office.
    3. Greg Kaplan & Giovanni L. Violante & Justin Weidner, 2014. "The Wealthy Hand-to-Mouth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(1 (Spring), pages 77-153.
    4. Natalie Cox & Peter Ganong & Pascal Noel & Joseph Vavra & Arlene Wong & Diana Farrell & Fiona Greig & Erica Deadman, 2020. "Initial Impacts of the Pandemic on Consumer Behavior: Evidence from Linked Income, Spending, and Savings Data," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 51(2 (Summer), pages 35-82.
    5. Scott R Baker & Robert A Farrokhnia & Steffen Meyer & Michaela Pagel & Constantine Yannelis & Jeffrey Pontiff, 0. "How Does Household Spending Respond to an Epidemic? Consumption during the 2020 COVID-19 Pandemic," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 10(4), pages 834-862.
    6. Greg Kaplan & Giovanni L. Violante & Justin Weidner, 2014. "The Wealthy Hand-to-Mouth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(1 (Spring), pages 77-153.
    7. David W. Stevens, 2007. "Employment that is not covered by state unemployment insurance Laws," Longitudinal Employer-Household Dynamics Technical Papers 2007-04, Center for Economic Studies, U.S. Census Bureau.
    8. Kanishka Misra & Paolo Surico, 2014. "Consumption, Income Changes, and Heterogeneity: Evidence from Two Fiscal Stimulus Programs," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(4), pages 84-106, October.
    9. Ganong, Peter & Noel, Pascal & Vavra, Joseph, 2020. "US unemployment insurance replacement rates during the pandemic," Journal of Public Economics, Elsevier, vol. 191(C).
    10. Congressional Budget Office, 2020. "An Update to the Budget Outlook: 2020 to 2030," Reports 56517, Congressional Budget Office.
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    Citations

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    Cited by:

    1. Ganong, Peter & Noel, Pascal & Vavra, Joseph, 2020. "US unemployment insurance replacement rates during the pandemic," Journal of Public Economics, Elsevier, vol. 191(C).
    2. Christopher D. Carroll & Edmund Crawley & Jiri Slacalek & Matthew N. White, 2021. "Modeling the Consumption Response to the CARES Act," International Journal of Central Banking, International Journal of Central Banking, vol. 17(1), pages 107-141, March.
    3. Dergiades, Theologos & Milas, Costas & Panagiotidis, Theodore, 2022. "Unemployment claims during COVID-19 and economic support measures in the U.S," Economic Modelling, Elsevier, vol. 113(C).
    4. Greppmair, Stefan & Jank, Stephan & Smajlbegovic, Esad, 2023. "On the importance of fiscal space: Evidence from short sellers during the COVID-19 pandemic," Journal of Banking & Finance, Elsevier, vol. 147(C).
    5. Hackethal, Andreas & Weber, Annika, 2020. "Fiscal policies and household consumption during the COVID-19 pandemic: A review of early evidence," SAFE White Paper Series 76, Leibniz Institute for Financial Research SAFE.
    6. Marianne Bitler & Jason Cook & Danea Horn & Nathan Seegert, 2022. "Incomplete program take-up during a crisis: evidence from the COVID-19 shock in one U.S. state," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(6), pages 1373-1394, December.
    7. Carlos Alberto Belchior & Yara Gomes, 2022. "Liquidity constraints, cash transfers and the demand for health care in the Covid‐19 pandemic," Health Economics, John Wiley & Sons, Ltd., vol. 31(11), pages 2369-2380, November.
    8. Christopher D. Cotton & Vaishali Garga & Justin Rohan, 2020. "Consumption Heterogeneity by Occupation: Understanding the Impact of Occupation on Personal Consumption during the COVID-19 Pandemic," Working Papers 20-16, Federal Reserve Bank of Boston.

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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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