Document Type

Conference Proceeding

Publication Date

2021

Journal Title or Book Title

Northeast Business and Economics Association (NBEA) 2021

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Publisher's PDF

Publisher's Statement

PUBLISHED BY THE NORTHEAST BUSINESS & ECONOMICS ASSOCIATION © 2021 The Northeast Business & Economics Association reserves the right to publish the Proceedings in both print and electronic formats. The individual authors retain the copyright over their own articles.

Abstract

This paper demonstrates the ineffectiveness of the COVID-19 stimulus checks distributed in 2020 under the CARES Act to increase consumer spending and provide economic relief where it was most needed. This is consistent with prior stimulus packages issued during severe economic downturns (1968, 1975, 2001 and 2008), where tax cuts and rebatesresulted in increased consumer savings and reduced levels of debt rather than increases in consumer spending. The intensity of the economic impact of the COVID pandemic, and the uneven recovery, was largely due to the need for ‘social distancing’ and the reduction of inperson interactions to help manage the spread of the virus. Social distancing policies resulted in business shutdowns and the voluntary curtailing of face-to-face activities by consumers. Industries hit hardest by the pandemic restrictions were those where work could not be performed remotely or required a high degree of physical proximity (high-touch industries). Based on consumer expenditure data from Q4 2019 to Q4 2020 and supported by the life-cycle and permanent income hypotheses, the analysis presented in this paper suggests that temporary fiscal policies administered during the economic downturn were not effective in stimulating personal consumption expenditures. More income in consumers’ hands could not generate more spending in high-touch industries when social distancing was mandated, so the extra money was mostly saved. Moreover, too much stimulus went to low-touch industries that did not need a boost. As a result, the stimulus checks were an incredibly expensive policy for the limited benefit they provided. Moving forward, we suggest that fiscal stimulus policies should be more specifically targeted and may need to be offered on a more permanent basis.

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