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.