Pension withdrawal as stimulus

by Steven Hamilton, Andrew Charlton, Geoffrey Liu

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.

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