Heterogeneity in the Marginal Propensity to Consume: Evidence from COVID-19 Stimulus Payments

We identify 22,461 recipients of COVID-19 Economic Impact Payments in anonymized transaction-level bank account data from Facteus. We use an event study framework to show that in the two weeks following a $1,200 stimulus payment in April 2020, consumers increased spending by $546, implying a marginal propensity to consume of 46%. Consumers used an additional 10% of the stimulus payment to pay off debt. Consumer spending fell to normal levels after two weeks. Stimulus recipients who live paycheck-to-paycheck spent 60% of the stimulus payment within two weeks, while recipients who save much of their monthly income spent only 24% of the stimulus payment within two weeks. Spending patterns are quite similar for the second round of stimulus payments in January, 2021, with consumers spending 39% of their stimulus payments within two weeks and using an additional 14% of their payment to pay off debt. Reweighting our data to match the U.S. population, ignoring equilibrium effects, and assuming a constant MPC for each person, we estimate that the CARES Act’s $296 billion of stimulus payments increased consumer spending by $130 billion (44% of total outlays) within two weeks of stimulus receipt. A stimulus bill targeted at individuals with the highest MPCs could have increased consumer spending and debt payments by the same amount at a cost of only $246 billion.