An Effective Stimulus?

As I noted recently, the effects of the fiscal stimulus tax rebate should be judged relative to the counter-factual of how consumption and output would have behaved in the policy's absence. This, of course, is unobservable, but Christian Broda and Jonathan Parker have found a clever way around this problem. They exploited the fact that the checks went out in a staggered fashion and compared the behavior of the households that had received checks with those whose hadn't come yet.

In a Vox column describing their findings, they report that the policy did work, after all. A couple of the main conclusions:

[T]he average household increased its weekly expenditures on non-durable goods by 3.5% after receipt of the rebate. The impact is highest in the week where the rebate is received (not reported) with weekly spending increasing by almost 6% on average during the first week. We find no impact on spending in the few weeks prior to the receipt of the rebate.

Interesting - economic theory would imply that households should change their consumption when they get the news of the stimulus, rather than waiting for the check actually arriving. This suggests that households are either myopic, or that credit constraints are binding.

Overall,

[O]ur estimates imply that the receipt of the tax rebates directly raised nondurable PCE by 2.4% in the second quarter of 2008 and will raise it by 4.1% in the third quarter.

Update (8/20): Macroblog (hooray, it's back) weighs in.