Household Finances and Fiscal Stimulus in 2008

Abstract

Using detailed household-level data from the Survey of Income and Program Participation, the ratio of credit card debt to income is found to be the most important balance sheet item in determining household usage of stimulus funds in 2008, adding to existing evidence that borrowing constraints are functions of debt-to-income ratios. Borrowing constrained households, often predicted to be the group with the largest propensity to consume out of stimulus funds, were the most likely to use stimulus payments to repay debt instead of increase consumption. This behavior is consistent with the fact that household credit supply was tightening at the same time that stimulus payments were being distributed, forcing households, especially those near their borrowing constraints, to deleverage.