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Photo: Reuters
Photo: Reuters

Did lockdown stimulus packages spur demand?

Beneficiaries of cash transfers during the lockdown were much more likely to pay debts or save the funds than to spend them, a study from the US finds

In the wake of the coronavirus-induced lockdowns, governments across the world announced major economic relief packages. Direct cash transfers to families were a major component of many such packages. But in the US, very few recipients of such funds seem to have spent them, finds a new paper.

Most beneficiaries of one-time transfers in the US either saved the money or used it to pay down debts, finds a new working paper published by the National Bureau of Economic Research. The findings are based on survey responses of 12,000 Americans.

The paper, by Olivier Coibion of University of Texas at Austin and others, is one of the first studies to assess the economic benefit of the relief transfers during the covid-19 lockdown.

Only 15% of the respondents said they spent the funds and 33% said they saved it. A majority, 52%, said they used it to repay debts. On average, individuals reported having spent or planning to spend only about 40% of the total transfer payments.

But the overall trend hides significant differences in individual behaviour patterns. While many respondents reported using their entire pay cheques to pay down debt, many also reported spending their entire stimulus payments.

Spending was especially higher among consumers who were out of the workforce, were uneducated, or those who lived in larger households, the paper finds.

The overall trend of subdued spending is, however, broadly consistent with the experiences of 2001 and 2008—two earlier occasions on which similar fiscal stimulus payments were given away.

In terms of where the money was spent, the authors find that most spending went to food, beauty, and other non-durable consumer products. Little was spent on hard-hit industries selling large durable goods such as cars and appliances.

Also read: How did US consumers use their stimulus payments?

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