In direct response to the Great Recession in 2008, Congress passed the American Recovery and Reinvestment Act (ARRA) in February 2009. It is also commonly referred to as the “Stimulus Package” or the “Recovery Act”. The ARRA was one of the largest fiscal stimulus programs in U.S. history, total spending accounting for approximately 2.6 percent of GDP over the years 2009-2010. Yet, the Stimulus Act has received little attention in the previous literature, contrast to a large number of studies on government tax rebate or direct purchases. Clear evaluation based on empirical evidence is needed to learn a lesson of what could have been done better, and what would have occurred without the fiscal stimulus packages.

This reform package entailed almost all sectors of the U.S. economy, including tax relief, state and local fiscal relief, infrastructure and science, entitlement programs for the vulnerable, education and training, and energy (ordered by the amount of spending). In this paper, I focus on the provisions that were specifically targeted for vulnerable households. Assisting those most impacted by the recession was one of primary goals of the Act, specifically aimed to low-income workers, unemployed, and retirees.

Given that the consumption is generally favored than income as a better measure of well-being of the poor, understanding how household consumption responds to tax relief and welfare transfer is a key for the formulation of effective government policies. Using CEX (Consumer Expenditure Survey) data, I found an attenuated consumption fall that is attributed to the availability of government-provided insurance through the Recovery Act 2009. The Act definitely offered a cushion for vulnerable group by helping them to reduce the fall in consumption upon the Great Recession. The findings do not necessarily support stimulus effect of the Act, but do suggest a positive welfare effect, allowing disadvantaged group to reallocate across spending categories by supplementing food budget and meeting pending housing needs.

This paper contributes to further variations on top of a number of existing literatures evaluating the government fiscal policy that aimed to boost the consumer spending. These positive findings align with the original goal of the Act, which is to push back against poverty by reviving consumer spending. Government transfer payments, produced by stimulus packages, moderated the fall in low-income household consumption that would otherwise have occurred.

It is an important finding with the concerns magnified for vulnerable households with low income and low asset at time of economic downturn. In this sense, this paper enlightens us with the possibility of government Recovery Act to work as one of possible mechanisms through which fall in consumptions of low income families can be muted.