Heterogeneity and macroeconomic state dependence in the spending response to stimulus

We explore how households’ stimulus spending varies by income under different macroeconomic conditions over 2020–2021. We document a shift in the spending distribution from a declining pattern with a high average spending response to a U-shaped one with weaker responses and spending rising with income over much of the distribution. We argue that during crisis times like 2020, binding liquidity constraints render poorer households anxious to consume, while in more normalized economies (2021), they prioritize saving or servicing debts. • US households responded very differently to fiscal stimulus in 2021 vs. 2020. • In 2021, higher income households tended to spend more out of government stimulus. • In 2021, there was a U-shape with respect to income in the spending distribution. • In 2020, the stimulus spending distribution was consistent with standard theory. • A simple model of expenditure necessities explains the 2020/2021 differential.