A new working paper from researchers at Duke University, the U.S. Treasury Department, the Federal Reserve, and the University of Chicago finds that COVID-era stimulus checks and Child Tax Credit payments explain less than 20% of the price increases seen in the auto market between 2020 and 2022. That challenges the popular narrative that pandemic relief payments were the primary cause of the inflation that followed.
What the Study Found
The paper, covered by the Chicago Booth Review, is a preliminary, not-yet-peer-reviewed working paper — an important caveat before treating its numbers as final. Even with that caveat, the core finding pushes back hard against a talking point that’s become conventional wisdom: that direct-to-household stimulus payments were the main engine of post-pandemic inflation.
Researchers estimated that stimulus and Child Tax Credit payments accounted for less than 20% of the price increases in the auto sector specifically — one of the biggest purchases most households make, and a market researchers chose precisely because it’s easy to track how relief money got spent.
How Researchers Reached That Conclusion
“Researchers compared auto sales in ZIP codes that received larger stimulus payments with those that received smaller payments and found that stimulus and Child Tax Credit payments boosted vehicle sales by about 3% annually above 2019 levels, resulting in more than 5 million additional vehicle purchases between 2020 and 2022.”
That’s the crux of the methodology: a comparison approach, not a simple before-and-after look at prices. By comparing ZIP codes that got more stimulus money against ZIP codes that got less, researchers could isolate the effect of the payments themselves from other nationwide forces hitting every ZIP code at once (like supply shortages).
The income boost from stimulus and Child Tax Credit payments raised household income by roughly 8% over two years. Based on that alone, researchers estimated prices should have risen only 1% to 2.5% — but actual vehicle prices rose 25%. That gap is the heart of the study’s argument: stimulus money alone can’t explain a 25% price jump when the income bump it created should have only pushed prices up a couple of percentage points.
What Did Drive Prices Up, According to Researchers
The paper points to several other factors as bigger contributors to the price surge:
- Supply chain shortages, especially semiconductor shortages that slowed new-vehicle production
- Low interest rates that made financing cheaper and increased buying power
- Easier access to credit
- A pandemic-era shift in spending patterns — away from services like dining and travel, and toward physical goods
There’s also a secondary finding about the used-car market: when people used stimulus money to buy new vehicles, they often traded in older cars, which increased the supply of used vehicles and may have helped keep used-car prices from rising even faster than they did.
Why This Debate Matters Beyond Economics Class
This isn’t just an academic argument. Whether stimulus payments caused inflation has been a live political question shaping how lawmakers think about any future relief spending — including the kind of proposed rebate checks and relief packages currently being debated in states like Wisconsin, or the sort of federal stimulus talk that resurfaces periodically in Washington. If direct payments aren’t the primary inflation driver, that changes the calculus for policymakers weighing future relief against inflation risk.
Limitations Worth Knowing
- The study is a working paper that has not been peer-reviewed, so its conclusions could shift after further review.
- It focuses specifically on the auto market, not the full basket of goods that make up the Consumer Price Index — so it’s one data point on one sector, not a complete account of 2021-2022 inflation.
- It doesn’t claim stimulus had zero effect — just that it wasn’t the dominant cause.
FAQ
Did stimulus checks cause inflation?
This study finds they were a minor contributor — under 20% of the price increase in the auto market — with supply shortages, low interest rates, and spending pattern shifts playing larger roles.
Is this study final and peer-reviewed?
No. It’s described as a preliminary working paper that has not yet been peer-reviewed, so it could be revised.
Why did researchers focus on cars instead of groceries or rent?
Vehicles are one of the largest single purchases most households make, which makes it easier to trace how stimulus money was actually spent and its effect on prices in that specific market.