Check in the mail or more in the paycheck: does the effectiveness of fiscal stimulus depend on how it is delivered?

Recent fiscal policies have aimed to stimulate household spending. In 2008, most households received one-time economic stimulus payments. In 2009, most working households received the Making Work Pay tax credit in the form of reduced withholding; other households, mainly retirees, received one-time payments. This paper quantifies the spending response to these different policies and examines whether the spending response differed according to whether the stimulus was delivered as a one-time payment or as a flow of payments in the form of reduced withholding. Based on responses from a representative sample of households in the Thomson Reuters/University of Michigan Surveys of Consumers, the paper finds that the reduction in withholding led to a substantially lower rate of spending than the one-time payments. Specifically, 25 percent of households reported that the one-time economic stimulus payment in 2008 led them to mostly increase their spending while only 13 percent reported that the extra pay from the lower withholding in 2009 led them to mostly increase their spending. The paper uses several approaches to isolate the effect of the delivery mechanism from the changing aggregate and individual conditions. Responses to a hypothetical stimulus in 2009, examination of “free responses” concerning differing responses to the policies, and regression analysis controlling for individual economic conditions and demographics all support the primary importance of the income delivery mechanism in determining the spending response to the policies. JEL Classification: H31, E62, C83Fiscal Stimulus, Marginal Propensity to Consume, survey responses, tax rebates

Check in the Mail or More in the Paycheck: Does the Effectiveness of Fiscal Stimulus Depend on How It Is Delivered?

Recent fiscal policies have aimed to stimulate household spending. In 2008, most households received one-time economic stimulus payments. In 2009, most working households received the Making Work Pay tax credit in the form of reduced withholding; other households, mainly retirees, received one-time payments. This paper quantifies the spending response to these different policies and examines whether the spending response differed according to whether the stimulus was delivered as a one-time payment or as a flow of payments in the form of reduced withholding. Based on responses from a representative sample of households in the Thomson Reuters/University of Michigan Surveys of Consumers, the paper finds that the reduction in withholding led to a substantially lower rate of spending than the one-time payments. Specifically, 25 percent of households reported that the one-time economic stimulus payment in 2008 led them to mostly increase their spending while only 13 percent reported that the extra pay from the lower withholding in 2009 led them to mostly increase their spending. The paper uses several approaches to isolate the effect of the delivery mechanism from the changing aggregate and individual conditions. Responses to a hypothetical stimulus in 2009, examination of ?free responses? concerning differing responses to the policies, and regression analysis controlling for individual economic conditions and demographics all support the primary importance of the income delivery mechanism in determining the spending response to the policies.Fiscal stimulus, tax rebates, marginal propensity to consume, survey responses

Imputing Risk Tolerance from Survey Responses

Economic theory assigns a central role to risk preferences. This paper develops a measure of relative risk tolerance using responses to hypothetical income gambles in the Health and Retirement Study. In contrast to most survey measures that produce an ordinal metric, this paper shows how to construct a cardinal proxy for the risk tolerance of each survey respondent. The paper also shows how to account for measurement error in estimating this proxy and how to obtain consistent regression estimates despite the measurement error. The risk tolerance proxy is shown to explain differences in asset allocation across households.

Check in the mail or more in the paycheck: does the effectiveness of fiscal stimulus depend on how it is delivered?

Recent fiscal policies have aimed to stimulate household spending. In 2008, most households received one-time economic stimulus payments. In 2009, most working households received the Making Work Pay tax credit in the form of reduced withholding; other households, mainly retirees, received one-time payments. This paper quantifies the spending response to these different policies and examines whether the spending response differed according to whether the stimulus was delivered as a one-time payment or as a flow of payments in the form of reduced withholding. Based on responses from a representative sample of households in the Thomson Reuters/University of Michigan Surveys of Consumers, the paper finds that the reduction in withholding led to a substantially lower rate of spending than the one-time payments. Specifically, 25 percent of households reported that the one-time economic stimulus payment in 2008 led them to mostly increase their spending while only 13 percent reported that the extra pay from the lower withholding in 2009 led them to mostly increase their spending. The paper uses several approaches to isolate the effect of the delivery mechanism from the changing aggregate and individual conditions. Responses to a hypothetical stimulus in 2009, examination of “free responses” concerning differing responses to the policies, and regression analysis controlling for individual economic conditions and demographics all support the primary importance of the income delivery mechanism in determining the spending response to the policies

Risk Tolerance and Asset Allocation.

Economic theory assigns a central role to risk preference in asset allocation. This dissertation includes three papers that investigate this relationship empirically. The first paper uses panel data on hypothetical gambles over lifetime income in the Health and Retirement Study to quantify changes in risk tolerance over time and differences across individuals. The maximum-likelihood estimation of a model with correlated random effects draws on detailed information from 12,000 respondents in the 1992-2002 HRS. The results support constant relative risk aversion and career selection based on preferences. While risk tolerance changes with age and macroeconomic conditions, persistent differences across individuals account for 73% of the systematic variation in preferences. The measure of risk tolerance also relates to actual stock ownership. The second paper develops a measure of relative risk tolerance using responses to hypothetical income gambles in the HRS. In contrast to most survey measures that produce an ordinal metric, this paper shows how to construct a cardinal proxy for the risk tolerance of each survey respondent. The paper also shows how to account for measurement error in estimating this proxy and how to obtain consistent regression estimates despite the measurement error. The risk tolerance proxy is shown to explain differences in asset allocation across households. The third paper investigates whether the characteristics of household labor income can account for the observed heterogeneity in financial portfolios. Households differ substantially in the riskiness of their labor income and in the magnitude of their labor income relative to their financial assets; however, the results of this paper suggest that households do not integrate their human capital in their financial asset allocation. This analysis uses direct, household-level comparisons between actual stock allocations and predicted allocations in three economic models with different assumptions about labor income. When labor income is excluded from the model, the correlation between actual and predicted stock allocations is 0.16. The inclusion of certain or risky labor income in the model leads to negative correlations of -0.12 and -0.06 respectively. There is no evidence that households view their wealth broadly and diversify risks across their financial assets and human capital.Ph.D.EconomicsUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/55677/2/csahm_1.pd

Lessons Learned: Claudia Sahm

Recommended Citation: Cardona, Mercedes (2022) Lessons Learned: Claudia Sahm, Journal of Financial Crises: Vol. 4 : Iss. 4, 633-636. Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol4/iss4/3

YPFS Lessons Learned Oral History Project: An Interview with Claudia Sahm

Suggested Citation Form: Sahm, Claudia, 2022. “Lessons Learned Interview by Mercedes Cardona, December 22, 2020.†Yale Program on Financial Stability Lessons Learned Oral History Project. Transcript. https://ypfs.som.yale.edu/library/ypfs-lesson-learned-oral-history-project-interview-claudia-sah

Check in the Mail or More in the Paycheck: Does the Effectiveness of Fiscal Stimulus Depend on How It Is Delivered?

Recent fiscal policies, including the 2008 stimulus payments and the 2009 Making Work Pay tax credit, aimed to increase household spending. This paper quantifies the spending response to these policies and examines differences in spending by whether the stimulus was delivered as a one-time payment or as a flow of payments from reduced withholding. Based on responses from a representative sample of households in the Thomson Reuters/University of Michigan Surveys of Consumers, the paper finds that the reduction in withholding in 2009 boosted spending at roughly half the rate (13 percent) as the one-time payments (25 percent) in 2008.

Risk Preferences in the PSID: Individual Imputations and Family Covariation

Survey measures of preference parameters provide a means for accounting for otherwise unobserved heterogeneity.This paper presents measures of relative risk tolerance based on responses to survey questions about hypothetical gambles over lifetime income.It discusses how to impute estimates of utility function parameters from the survey responses using a statistical model that accounts for survey response error. There is substantial heterogeneity in true preference parameters even after survey response error is taken into account.The paper discusses how to use the preference parameters imputed from the survey responses in regression models as a control for differences in preferences across individuals. This paper focuses on imputations for respondents in the Panel Study of Income Dynamics (PSID).It also studies the covariation of risk preferences among members of households.It finds fairly strong covariation in attitudes about risk -- between parents and children and especially between siblings and between spouses.