Stimulating Consumption at Low Budget – Evidence from a Large-Scale Policy Experiment Amid the COVID-19 Pandemic

Posted: 24 Jun 2020 Last revised: 15 Mar 2021

See all articles by Qiao Liu

Qiao Liu

Peking University - Guanghua School of Management

Qiaowei Shen

Peking University - Guanghua School of Management

Zhenghua Li

Research institute, Ant Financial

Shu Chen

Research institute, Ant Financial

Date Written: June 14, 2020

Abstract

We use a novel panel with detailed transaction records of more than one million de-identified individuals to study the effect of a large-scale Chinese government-issued digital coupon program on consumer spending. At the core of this stimulus program are a set of salient features that drive the marginal propensity to consume (MPC) to the range of 3.4 to 5.8, an order of magnitude larger than those in previous studies. Testing between different models of consumer behaviors, we find that a behavioral model with mental accounting and loss framing can match the empirical evidence from the field. Our analysis, by illustrating the importance of embedding behavioral factors into the design and implementation of public policy, inform the current debate about cost effective policy tools to recover the economy.

Keywords: COVID-19, fiscal stimulus program, MPC, policy experiment, Chinese digital coupon, behavioral economics

JEL Classification: D12, H31, E21, E61, E62, H53

Suggested Citation

Liu, Qiao and Shen, Qiaowei and Li, Zhenghua and Chen, Shu, Stimulating Consumption at Low Budget – Evidence from a Large-Scale Policy Experiment Amid the COVID-19 Pandemic (June 14, 2020). Available at SSRN: https://ssrn.com/abstract=3626518 or http://dx.doi.org/10.2139/ssrn.3626518

Qiao Liu

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Qiaowei Shen (Contact Author)

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Zhenghua Li

Research institute, Ant Financial ( email )

Hangzhou, Zhejiang
China

Shu Chen

Research institute, Ant Financial ( email )

Hangzhou, Zhejiang
China

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