“In the months following the outbreak of COVID-19, Economic Impact Payments and the Paycheck Protection Program provided fiscal support to households and businesses,” said the Hutchins Center on Fiscal and Monetary Policy at Brookings this week, citing a new research paper on Economic Incentive Programs (EIPs) during the early years of the Biden Administration economic recovery.
Using data on motor vehicle sales and the Consumer Expenditure Survey, Jack Dunbar of the University of Pennsylvania and co-authors* find that these policies boosted new car sales by 12% in 2020, or 1.75 million cars. They also find that the increase in sales caused by the fiscal programs accounted for 70% of the declines in inventory through 2021. The stimulus-induced demand, which coincided with supply constraints that reduced inventories, accounted for 20% of the increase in vehicle prices compared to pre-pandemic pricing.
AutoInformed Executive Summary
“Our paper adds to the vast, unsettled literature that studies the effects of discretionary fiscal policy on economic activity and other macroeconomic variables. Several contributions — such as Auerbach [2002] and Taylor [2011, 2022] — point to a largely limited stabilization impact of fiscal policy in recent decades. Moreover, Shapiro and Slemrod [2009] and Orchard et al. [2023] also find only a modest effect of the 2008 stimulus payments on overall spending. By contrast, Parker et al. [2013] document a significant effect of the 2008 stimulus payments on consumption, with 2/3 of the consumption boost materializing through vehicle purchases.
“Fiscal stimulus’ effects on vehicle sales also remain an active debate with respect to their magnitude and durability. On the one hand, the seminal contribution by Mian and Sufi [2012] suggests that the Car Allowance Rebate System — a program implemented in 2009 that was directly targeting light vehicle sales — led to a temporary boost of sales that was reversed in the following months. On the other hand, Hicks et al. [2012] point to a somewhat larger effect with little change in purchasing patterns following the end of the program. Finally, Orchard et al. [2023] suggest a small boost to motor vehicle expenditures from the 2008 stimulus payments.
“Our paper revisits the link between discretionary fiscal programs and light vehicle purchases, taking advantage of the unprecedented magnitude of fiscal support enacted in response to the pandemic recession. Indeed, the literature remaining inconclusive on this question may reflect the relatively moderate sizes of previous stimulus programs. The effect of the first round of EIPs on consumption has been also analyzed by Parker et al. [2022], which characterizes the MPCs for various consumption categories by exploiting the variation in the amount, the receipt, and the timing of receipt of the 2020 stimulus checks; in particular, they document a negligible impact on transportation, a category that mainly includes purchases of vehicles. While our paper separately analyzes the various rounds of Economic Impact Payments, it identifies whether the receipt of a stimulus check alter the probability of purchasing a vehicle, rather than the effect on the dollar value; in fact, our analysis of units is likely to be less affected by confounding factors and other incentives that, instead, could shift consumer expenditure towards vehicles of different values.3 [Marginal Propensity to Consume (MPC) is the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, instead of saving it. MOC is a part of Keynesian macroeconomic theory. MPC is and is computed as the change in consumption divided by the change in income.]
“Our results suggest that the effect materializes through additional new and used vehicle purchases. More importantly, our work adds two pieces of novel evidence. First, we document that the PPP, a program that primarily targeted small businesses, had also implications on household expenditures.
Second, we rely on novel micro-level data on prices, sales, and inventory levels to infer the inflation implications of robust vehicle sales.”
*Dunbar, Jack, Christopher Kurz, Geng Li, and Maria D. Tito (2024). “In the Driver’s Seat: Pandemic Fiscal Stimulus and Light Vehicles,” Finance and Economics Discussion Series 2024-013. Washington: Board of Governors of the Federal Reserve System, Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors.
The full paper referenced by Brookings is here.
Bidenomics – Fiscal Policy Increased Car Sales During 2020
“In the months following the outbreak of COVID-19, Economic Impact Payments and the Paycheck Protection Program provided fiscal support to households and businesses,” said the Hutchins Center on Fiscal and Monetary Policy at Brookings this week, citing a new research paper on Economic Incentive Programs (EIPs) during the early years of the Biden Administration economic recovery.
Using data on motor vehicle sales and the Consumer Expenditure Survey, Jack Dunbar of the University of Pennsylvania and co-authors* find that these policies boosted new car sales by 12% in 2020, or 1.75 million cars. They also find that the increase in sales caused by the fiscal programs accounted for 70% of the declines in inventory through 2021. The stimulus-induced demand, which coincided with supply constraints that reduced inventories, accounted for 20% of the increase in vehicle prices compared to pre-pandemic pricing.
AutoInformed Executive Summary
“Our paper adds to the vast, unsettled literature that studies the effects of discretionary fiscal policy on economic activity and other macroeconomic variables. Several contributions — such as Auerbach [2002] and Taylor [2011, 2022] — point to a largely limited stabilization impact of fiscal policy in recent decades. Moreover, Shapiro and Slemrod [2009] and Orchard et al. [2023] also find only a modest effect of the 2008 stimulus payments on overall spending. By contrast, Parker et al. [2013] document a significant effect of the 2008 stimulus payments on consumption, with 2/3 of the consumption boost materializing through vehicle purchases.
“Fiscal stimulus’ effects on vehicle sales also remain an active debate with respect to their magnitude and durability. On the one hand, the seminal contribution by Mian and Sufi [2012] suggests that the Car Allowance Rebate System — a program implemented in 2009 that was directly targeting light vehicle sales — led to a temporary boost of sales that was reversed in the following months. On the other hand, Hicks et al. [2012] point to a somewhat larger effect with little change in purchasing patterns following the end of the program. Finally, Orchard et al. [2023] suggest a small boost to motor vehicle expenditures from the 2008 stimulus payments.
“Our paper revisits the link between discretionary fiscal programs and light vehicle purchases, taking advantage of the unprecedented magnitude of fiscal support enacted in response to the pandemic recession. Indeed, the literature remaining inconclusive on this question may reflect the relatively moderate sizes of previous stimulus programs. The effect of the first round of EIPs on consumption has been also analyzed by Parker et al. [2022], which characterizes the MPCs for various consumption categories by exploiting the variation in the amount, the receipt, and the timing of receipt of the 2020 stimulus checks; in particular, they document a negligible impact on transportation, a category that mainly includes purchases of vehicles. While our paper separately analyzes the various rounds of Economic Impact Payments, it identifies whether the receipt of a stimulus check alter the probability of purchasing a vehicle, rather than the effect on the dollar value; in fact, our analysis of units is likely to be less affected by confounding factors and other incentives that, instead, could shift consumer expenditure towards vehicles of different values.3 [Marginal Propensity to Consume (MPC) is the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, instead of saving it. MOC is a part of Keynesian macroeconomic theory. MPC is and is computed as the change in consumption divided by the change in income.]
“Our results suggest that the effect materializes through additional new and used vehicle purchases. More importantly, our work adds two pieces of novel evidence. First, we document that the PPP, a program that primarily targeted small businesses, had also implications on household expenditures.
Second, we rely on novel micro-level data on prices, sales, and inventory levels to infer the inflation implications of robust vehicle sales.”
*Dunbar, Jack, Christopher Kurz, Geng Li, and Maria D. Tito (2024). “In the Driver’s Seat: Pandemic Fiscal Stimulus and Light Vehicles,” Finance and Economics Discussion Series 2024-013. Washington: Board of Governors of the Federal Reserve System, Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors.
The full paper referenced by Brookings is here.