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Title: Optimal Allocation of the COVID-19 Stimulus Checks

Author(s): Vegard M. Nygaard, Bent E Sørensen and Fan Wang

Publication Date: September 2020

Keyword(s): CARES Act, Heterogeneous Consumers, Propensity to Consume and Stimulus Effect

Programme Area(s): Monetary Economics and Fluctuations

Abstract: Congress spent $250 billion sending checks to individuals in March 2020 to provide economic stimulus. Could the same amount of stimulus have been achieved for less money? Using a life-cycle consumption-saving model with heterogeneous consumers, we calculate the consumption responses to cash transfers for, e.g., couples and singles with different levels of income and number of children. We calculate the aggregate consumption response for all feasible allocations of $250 billion and, using a new algorithm that allows for the ranking of an arbitrarily large number of allocations, we find the optimal allocation under alternative constraints. The optimal policy allocates more toward low-income and younger consumers and can achieve the same stimulus effect at almost half the cost.

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Bibliographic Reference

Nygaard, V, Sørensen, B and Wang, F. 2020. 'Optimal Allocation of the COVID-19 Stimulus Checks'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15283