Optimal allocations to heterogeneous agents with an application to stimulus checks

DOI10.1016/J.JEDC.2022.104352MaRDI QIDQ2136963zbMATH OpenOpenAlexFDO

Authors Vegard M. Nygaard, Bent E. Sørensen, F. Wang

Publication date 16 May 2022

Published in Journal of Economic Dynamics and Control (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2204.03799

zbMATH Keywords

American rescue planconsumption inequalityeconomic stimulus actpropensity to consumewelfare inequality

Mathematics Subject Classification ID

Resource and cost allocation (including fair division, apportionment, etc.) (91B32) Heterogeneous agent models (91B69)

Abstract: A planner allocates discrete transfers of size $D_g$ to $N$ heterogeneous groups labeled $g$ and has CES preferences over the resulting outcomes, $H_g(D_g)$. We derive a closed-form solution for optimally allocating a fixed budget subject to group-specific inequality constraints under the assumption that increments in the $H_g$ functions are non-increasing. We illustrate our method by studying allocations of "support checks" from the U.S. government to households during both the Great Recession and the COVID-19 pandemic. We compare the actual allocations to optimal ones under alternative constraints, assuming the government focused on stimulating aggregate consumption during the 2008--2009 crisis and focused on welfare during the 2020--2021 crisis. The inputs for this analysis are obtained from versions of a life-cycle model with heterogeneous households, which predicts household-type-specific consumption and welfare responses to tax rebates and cash transfers.

Recommendations

• Optimal government policies in models with heterogeneous agents
• Optimal subsidy for the poor
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• Optimal allocation without transfer payments

Cites work

• Fiscal policy during a pandemic
• Inferring welfare maximizing treatment assignment under budget constraints
• Tax and Education Policy in a Heterogeneous-Agent Economy: What Levels of Redistribution Maximize Growth and Efficiency?
• Who should be treated? Empirical welfare maximization methods for treatment choice

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