DP15283 Optimal Allocation of the COVID-19 Stimulus Checks

Author(s):	Vegard M. Nygaard, Bent E Sørensen, Fan Wang
Publication Date:	September 2020
Date Revised:	October 2020
Keyword(s):	CARES Act, Heterogeneous Consumers, Propensity to Consume, Stimulus Effect
JEL(s):	C6, D15, I38
Programme Areas:	Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=15283

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.