Relief package will increase GDP in the short-term, but most direct payments will go toward household savings and produce limited stimulative effects
PHILADELPHIA, February 3, 2021––On January 14, 2021, the Biden administration released a $1.9 trillion emergency rescue package to provide economic relief during the ongoing coronavirus pandemic and recession. The Penn Wharton Budget Model (PWBM) at the Wharton School of the University of Pennsylvania today released three briefs analyzing the Biden COVID relief plan, including the budgetary and distributional effects of direct aid and the plan’s overall macroeconomic impact.
PWBM estimates that:
- Three provisions in the Biden COVID relief plan—direct payments, expanding the Child Tax Credit and expanding the Earned Income Tax Credit—together would cost $595 billion in calendar year 2021.
- 99 percent of households in the bottom 80 percent of incomes would receive direct aid under the Biden plan. The average benefit for households in the bottom 40 percent of incomes would be over $3,000.
- In aggregate, 73 percent of the proposed $1,400 relief payments will go directly into household savings, and 27 percent will go toward increased consumption, producing only small stimulative effects.
- The full $1.9 trillion Biden relief plan would increase GDP in 2021 by 0.6 percent relative to baseline.
- Over time, additional public debt resulting from the $1.9 trillion in spending would decrease GDP in 2022 by 0.2 percent and in 2040 by 0.3 percent.
For more information, read the full reports: Direct Aid in the Biden COVID Relief Plan: Budgetary and Distributional Effects, Macroeconomic Effects of the $1.9 Trillion Biden COVID Relief Plan and Marginal Propensities to Consume in the 2021 Economy.
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About the Penn Wharton Budget Model
PWBM is a nonpartisan, independent applied research organization housed at the Wharton School of the University of Pennsylvania. PWBM works directly with policymakers and staff, serving as an honest broker by providing accurate, accessible, and transparent economic analysis of the fiscal and economic impact of public policy without advocacy. PWBM’s estimates are regularly referenced by policymakers and top news outlets. For more information, visit https://budgetmodel.wharton.upenn.edu/.
About the Wharton School
Founded in 1881 as the world’s first collegiate business school, the Wharton School of the University of Pennsylvania is shaping the future of business by incubating ideas, driving insights, and creating leaders who change the world. With a faculty of more than 235 renowned professors, Wharton has 5,000 undergraduate, MBA, executive MBA and doctoral students. Each year 13,000 professionals from around the world advance their careers through Wharton Executive Education’s individual, company-customized, and online programs. More than 99,000 Wharton alumni form a powerful global network of leaders who transform business every day. For more information, visit www.wharton.upenn.edu.