Pandemic Paychecks: Unraveling the Impact of COVID-19 Stimulus Efforts on Low Income, Essential, and Non-Essential Spending in the US

Abstract

This study examines the effects of COVID-19 relief measures on the consumption patterns of low-income, essential and non-essential households in the United States, with an emphasis on the associations between regional, political, and economic disparities among states and the subsequent shifts in diverse spending categories. Drawing on data from Affinity Solutions, Oxford University's Coronavirus Government Response Tracker (OxCGRT), and the U.S. Bureau of Economic Analysis (BEA), the research develops categorical classifiers, such as Lockdown Stringency, BEA Economic Region, Income Level, and Political Affiliation, to discern trends that clarify the heterogeneous state responses to each phase of government financial aid in areas like retail, groceries, leisure, merchandise outlets, and furniture/appliances. By combining multiple spending sectors and conducting a series of Difference-in-Differences regressions, the econometric analysis uncovers significant findings, highlighting that the most prominent determinant of disparities in low-income and high-income expenditure was the BEA economic region, with the Far West exhibiting the smallest estimated difference and the Mideast the largest. Moreover, the third round of stimulus proved to be the most consistent in examining the effect of categorical classifiers on the causal relationship between relief measures and alterations in consumption levels. These insights carry implications for policy-making concerning the formulation and allocation of future economic relief initiatives during crises. Key Words: Stimulus Payments, Low-Income, Non-Essential Consumption, Covid-19, CARES Act, American Rescue Plan, Recovery Rebate Act