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

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  • Qiao Liu

    (Guanghua School of Management, Peking University, 100871 Beijing, China)

  • Qiaowei Shen

    (Guanghua School of Management, Peking University, 100871 Beijing, China)

  • Zhenghua Li

    (Research Institute, Ant Group, 310013 Hangzhou, China)

  • Shu Chen

    (Research Institute, Ant Group, 310013 Hangzhou, China)

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. Exploiting a difference-in-differences approach, we find that the digital coupon is highly effective in stimulating consumption. An effective government subsidy of RMB 1 can drive excess spending of RMB 3.4 to RMB 5.8, and the effect persists across multiple coupon issuance waves. In explaining the results, we find that a behavioral model with mental accounting and loss aversion 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, informs the current debate about cost-effective policy tools to recover the economy.

Suggested Citation

  • Qiao Liu & Qiaowei Shen & Zhenghua Li & Shu Chen, 2021. "Stimulating Consumption at Low Budget: Evidence from a Large-Scale Policy Experiment Amid the COVID-19 Pandemic," Management Science, INFORMS, vol. 67(12), pages 7291-7307, December.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:12:p:7291-7307
    DOI: 10.1287/mnsc.2021.4119
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    2. Bernard, René, 2023. "Mental accounting and the marginal propensity to consume," Discussion Papers 13/2023, Deutsche Bundesbank.
    3. Liang Guo & Wendy Xu, 2023. "“We Are the World”: When More Equality Improves Efficiency and Antipandemic Consumptions Are Intervened," Marketing Science, INFORMS, vol. 42(2), pages 214-232, March.
    4. Chen, Zhuo & Li, Pengfei & Liao, Li & Liu, Lu & Wang, Zhengwei, 2024. "Assessing and addressing the coronavirus-induced economic crisis: Evidence from 1.5 billion sales invoices," China Economic Review, Elsevier, vol. 85(C).
    5. Jinglong Dai & Hanwei Li & Weiming Zhu & Jianfeng Lin & Binqiang Huang, 2024. "Data-Driven Real-time Coupon Allocation in the Online Platform," Papers 2406.05987, arXiv.org, revised Jun 2024.
    6. Zhou, Ye & Huang, Difang & Chen, Muzi & Wang, Yunlong & Yang, Xiaoguang, 2024. "How did small business respond to unexpected shocks? Evidence from a natural experiment in China," Journal of Corporate Finance, Elsevier, vol. 84(C).
    7. Ku, Inhoe & Ham, Sunyu & Moon, Heyjin, 2023. "Means-tested COVID-19 stimulus payment and consumer spending: Evidence from card transaction data in South Korea," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1359-1371.
    8. Silva, Emmanuel Marques & Moreira, Rafael de Lacerda & Bortolon, Patricia Maria, 2023. "Mental Accounting and decision making: a systematic literature review," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 107(C).

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