Discussion Paper Details

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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 $250B sending stimulus checks to individuals. Could the same stimulus have been achieved for less, assuming the government's information is restricted to 2019 tax returns? Using a life-cycle consumption-saving model with heterogeneous consumers, we calculate the consumption responses to $100 increments of cash transfers by, e.g., marital status, income, and number of children. We find the optimal allocation under different constraints using a new algorithm that can rank an arbitrarily-large number of possible allocations. The optimal policy roughly doubles the amount for low-income and younger consumers and can achieve the same stimulus 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.