Steven Hamilton, Andrew Charlton, Geoffrey Liu

Pensions represent an alternative funding source for cash stimulus during recessions, enabling governments to overcome constraints on public debt. During the COVID- 19 crisis, the Australian Government provided cash stimulus of up to AUD$20,000 (US$15,000) per person via early pension withdrawals, with a quarter of the working-age population withdrawing 3% of GDP. Using detailed bank account transaction data, we find a marginal propensity to consume (MPC) out of these withdrawals of 0.6, with the effect gradually falling over a 6-week period. This suggests an immediate GDP impact of just under 2%. Among those who took up the policy, treatment effects increased substantially with low liquidity, income loss and welfare recipient status, suggesting even tighter targeting would have raised the MPC.