The 2008 Economic Stimulus Payments and Durable Consumption

Abstract

During the Great Recession in the United States, a myriad of policy tools were used in the hopes stimulating a stagnant economy. The purpose of this paper is to look into the effects of one such tool that was used, the Economic Stimulus Payments (ESPs), which made up a significant portion of the Economic Stimulus Act of 2008. Specifically, this paper looks into the effect of these payments on household durable consumption. This research is an extension of the current literature on the subjects of ESPs (e.g. PSJM (2011)), which has focused on the effect of these ESPs on household expenditures on nondurables and discuss the effect on durables in a cursory manner. Considering the fact that durables provide long-term benefits to households and has been largely unexplored as a channel through which payments to households affect the economy, it is important to understand the effect of the 2008 ESPs in this area. This study analyzes data from 2008 Consumer Expenditure Survey from U.S. Bureau of Labor Statistics and uses a difference-in-difference model to access if the 2008 ESPs affected durable consumption in the second quarter of 2008. Overall, the results indicate that there was no effect of the 2008 ESPs on durable consumption. However, for middle income households and those that received their ESPs by electronic fund transfer, there was a statistically significant increase durable consumption associated with receiving an ESP. For policy-makers, these results imply that who receives such payments and how they receive them effects how the payments are spent. Additionally, my findings imply that ESPs likely do not stimulate the economy through increase in durable consumption.