Consumption responses to an unconditional child allowance in the United States

Abstract

AbstractThe COVID-19 pandemic put families in the United States under financial stress. The federal government’s largest response in 2021 was the American Rescue Plan Act, which temporarily expanded the Child Tax Credit (CTC) into a large, unconditional child allowance providing monthly payments to families with children. This study investigates consumption responses to the CTC expansion using anonymized mobile-location data and debit/credit card data that track visits and spending at 1.3 million establishments across US counties. For identification, we exploit variation in the size of households’ income gains due to the CTC across counties in a difference-in-differences framework spanning January 2021 to May 2022. Counties benefiting most from the CTC expansion experienced larger increases in visits to childcare centres and health- and personal-care establishments, and increased visits to and spending per transaction at grocery and general stores. These findings suggest that the CTC expansion increased household consumption and spending on children.