Consumption Responses to an Unconditional Child Allowance in the United States

The economic crisis triggered by COVID-19 put families with children in the United States under significant financial stress. The federal government’s largest response in 2021 was the American Rescue Plan Act, which temporarily expanded the Child Tax Credit (CTC) into a large, unconditional child allowance providing monthly income support to families with children. This study investigates consumption responses to the CTC expansion using anonymized mobile-location data and debit/credit card data that track visits and spending at 1.3 million establishments across counties that cover 99.6% of the U.S. population. For identification, we exploit variation in the size of households’ income gains due to the CTC across counties in a difference-in-differences framework spanning January 2021 through May 2022. We find that counties benefiting most from the CTC expansion experienced larger increases in visits to child care centers; increased spending amounts at personal care establishments, restaurants, and grocery and general stores; and no significant increase in consumption at alcohol, tobacco, or gambling establishments. We find some evidence that CTC payment frequency matters for spending decisions: when distributed at monthly frequency, the CTC payments contributed to greater consumption at grocery and general stores. When distributed as a lumpsum, the benefit contributed to greater consumption at children’s and family clothing stores. Both payment types contributed to greater visits to child care centers. These findings suggest that the CTC expansion increased household consumption and particularly spending on children.