‘Less Is More’: Consumer Spending and the Size of Economic Stimulus Payments

We study how consumption responds to unexpected, transitory income gains of different sizes using hypothetical questions from the Italian Survey of Household Income and Wealth. Affluent households exhibit higher marginal propensities to consume (MPCs) out of large gains, while liquidity-poor families show higher MPCs out of small gains.The spending patterns of higher earners align with models featuring non-homothetic preferences, whereas borrowing constraints explain the heterogeneity among low-income households. Our findings imply that, for a given fiscal outlay, distributing smaller transfers to a broader group of low-income households stimulates aggregate consumption more effectively than concentrating larger transfers among fewer recipients. (JEL D12, E21, E62, G51, H23)