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Israeli study finds paying off debt, not spending, is main use of stimulus cash

Study says plan that handed 750 NIS to every Israeli ‘modestly achieved’ government goal to stimulate an economy battered by coronavirus lockdown measures

A man sleeps on a public bench next to closed shops on Hillel Street in downtown Jerusalem, on September 23, 2020, during a nationwide lockdown. (Nati Shohat/Flash90)
A man sleeps on a public bench next to closed shops on Hillel Street in downtown Jerusalem, on September 23, 2020, during a nationwide lockdown. (Nati Shohat/Flash90)

An Israeli study that researched people’s financial responses to the direct one-time coronavirus stimulus payments distributed by the government in August, found that more people used their government stimulus checks to pay outstanding debts rather than going out and spending.

The study, released Tuesday, concluded that the government’s stated goal of economic stimulation was “at a minimum, modestly achieved.”

In August the National Insurance Institute began rolling out Prime Minister Benjamin Netanyahu’s stimulus package to help Israelis struggling with the financial effects of coronavirus restrictions.

The widely-criticized program handed out NIS 750 ($219) to every adult, with families receiving an additional NIS 500 ($146) for every child up until 4 children, and NIS 300 ($87) from the fifth child onward.

A man wearing a mask walks past a closed cafe in Jerusalem on March 15, 2020 (Nati Shohat/Flash90)

The study found that among respondents to the survey, the main use of the grants (42%) was paying down outstanding debt. Just a little over a fourth (26%) reported they increased their spending after receiving the grant, and 15% said they saved the money.

The study showed that income level and age of the recipient both played a role in how the grant was used.

Wealthier and older households were more likely to donate the money or to give it to family members, while younger respondents were more likely to use it toward debt.

In terms of education levels, respondents who had a university education were more likely to report the grant had no effect on their households.

Closed down cafes and restaurants in Tel Aviv, on September 22, 2020 (Miriam Alster/Flash90)

The study also found that respondents who identified as Jewish were more likely to save the money, and people who defined themselves in the survey as secular were more likely to say the money had no effect on their households.

The study concluded that the government’s attempt to “stimulate aggregate demand” was achieved, noting the low fraction of respondents who said they mostly saved the money.

According to the study, the majority of people paying down debt was in line with other studies in the field of government handouts.

The study was conducted by two professors from the Hebrew University of Jerusalem, Ori Heffetz and Naomi Feldman. Heffetz is also a professor at the Johnson Graduate School of Management of Cornell University and a research associate at the American non-profit National Bureau of Economic Research. The survey was partially funded by the Prime Minister’s Office.

The poll was administered in Hebrew by a third-party survey company between August 26 and August 30. A sample of 1,002 18+ Israelis completed the survey and formed a representative sample of Israeli society based on the five variables of sex, age, geographic region, level of religious observance, and income.

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