April 2, 2020 Examining the macroeconomic impact of the CARES Act Following enactment of the $2.2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020, the EY Macroeconomic Model of the US Economy was used to estimate the impact of the CARES Act on the US economy, as well as on major industries. Companies and industry groups may find these estimates useful to gauge when the CARES Act stimulus will impact the economy and the size of the impact on different industries. Key results include the following:
Note: Estimates from the EY Macroeconomic Model of the US Economy are based on publicly available data as of March 27th. Estimates could change with more recent data. Estimates are rounded. Source: EY analysis.
Note: Estimates from the EY Macroeconomic Model of the US Economy are based on publicly available data as of March 27th. Estimates could change with more recent data. Industry definitions are based on the North American Industry Classification System (NAICS). Estimates are rounded. Source: EY analysis. Implications The impact of the CARES Act — and, more generally, how the economy will respond to COVID-19 — will, of course, vary by company as well as by market and state. Businesses and stakeholders need to understand — through financial modeling — how tax policy and changes in economic conditions will impact their company, their customers, and their markets. Appendix — Description of modeling This analysis primarily relies on fiscal multipliers (i.e., estimates of how responsive US GDP is to fiscal stimulus). Academic estimates of fiscal multipliers vary considerably and differ depending on, for example, the characteristics of the economy in which fiscal policy is used, the assumed response of the central bank to fiscal policy, and the type of fiscal policy, among other dimensions. Following an approach used by the Congressional Budget Office and President's Council of Economic Advisers, this analysis categorizes the CARES Act into type of fiscal policy (e.g., transfer payments to individuals, purchases of goods and services by federal government) and uses a separate fiscal multiplier for each category of fiscal policy in the CARES Act. Generally, a range consistent with the central tendency of the Congressional Budget Office's review of the fiscal multiplier literature was used. Views amongst economists varied widely as to how responsive the US economy is to fiscal stimulus. To reflect this range, "high" and "low" estimates were also produced. When parameterized using assumptions reflecting the lower range and higher range of these views, the CARES Act is estimated to increase GDP by $0.4 trillion and $2.5 trillion, respectively. The economic impact of the CARES Act by industry was estimated in three steps. First, the consumer spending patterns of individuals receiving payments from the CARES Act were modeled, including the type of industry activity required to produce the goods and services consumed. These consumer spending patterns were based primarily on estimates from the academic literature examining how consumers behave during pandemics modified to reflect the characteristics of the COVID-19 pandemic. Second, the types of federal, state, and local government spending supported by the CARES Act were modeled, including the type of industry activity this government spending supports. Finally, the business activity supported by provisions of the CARES Act were modeled. For a more technical discussion, see Charles J. Whalen and Felix Reichling, "The Fiscal Multiplier and Economic Policy Analysis in the United States," Congressional Budget Office, February 2015, and Marcus R. Keogh-Brown, Simon Wren-Lewis, W. John Edmunds, Philippe Beutels, and Richard D. Smith, "The possible macroeconomic impact on the UK of an influenza pandemic," Health Economics 19(11): pp. 1345–1360. ———————————————
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