CONSUMER SPENDING AND THE ECONOMIC STIMULUS PAYMENTS OF 2008


ABSTRACT
We measure the response of household spending to the economic stimulus payments (ESPs) disbursed
in mid-2008, using special questions added to the Consumer Expenditure Survey and variation arising
from the randomized timing of when the payments were disbursed. We find that, on average, households
spent about 12-30% (depending on the specification) of their stimulus payments on non-durable expenditures
during the three-month period in which the payments were received. Further, there was also a significant
increase in spending on durable goods, in particular vehicles, bringing the average total spending response
to about 50-90% of the payments. Relative to research on the 2001 tax rebates, these spending responses
are estimated with greater precision using the randomized timing variation. The estimated responses
are substantial and significant for older, lower-income, and home-owning households. We further
extend the literature in two ways. First, we find little evidence that the propensity to spend varies with
the method of disbursement (paper check versus electronic transfer). Second, we evaluate a complementary
methodology for quantifying the impact of tax cuts, which asks consumers to self-report whether they
spent their tax cuts. The response of spending to the ESPs is indeed largest for self-reported spenders.
However, self-reported savers also spent a significant fraction of the payments.