Government Consumption and Economic Outcomes : A Study of the Effects of the Stimulus Packages in The U.S. During the COVID-19 Pandemic

This paper studies the impulse responses of output and private consumption to the COVID-19 stimulus packages in the U.S. I develop a Structural Vector Autoregression (SVAR) to calculate the orthogonalized impulse response functions (OIRFs) of output and private consumption to a government consumption shock during the pandemic recession. The results are consistent with government consumption shock stylized facts: (1) output and private consumption increased on impact to the stimulus packages during the pandemic recession; (2) government consumption and private consumption were complementary during the pandemic. Furthermore, the on-impact and cumulative fiscal multiplier of the COVID-19 stimulus packages are 0.61 and 0.60 respectively. The on-impact impulse responses of output and private consumption to the stimulus packages were lower during the pandemic recession than those during past recessionary periods in the U.S. Such less significant responses were induced by a low marginal propensity to consume and a drop in the employment level during the COVID-19 pandemic in the U.S. My results suggest that in addition to the fear of COVID-19 and lockdown policies, a drop in the employment level of low-income households caused the presence of a low marginal propensity to consume in the U.S. during the pandemic recession