Matthew Notowidigdo: Consumer-Financed Fiscal Stimulus: Evidence from Digital Coupons in China

Date: 

Monday, October 3, 2022, 12:00pm to 1:30pm

Location: 

HBS, Allison Dining Room

Inequality & Social Policy Seminar presentation by Matthew NotowidigdoProfessor of Economics, University of Chicago.

Abstract: We study a new form of economic stimulus undertaken by municipalities across China starting in 2020: government-issued digital coupons designed to encourage spending in certain categories such as restaurants, groceries, and entertainment. Using unique account-level and transaction-level data from a large online shopping platform that distributed the coupons, we estimate the effects of the coupons on spending for many different types of coupons with different spending thresholds (e.g., “Spend at least ¥X, get ¥Y off”). We identify the effects of the coupons on spending using a bunching estimator that uses the transaction-level spending distribution in the weeks before each coupon is distributed as the counterfactual. We present clear visual evidence of sharp bunching at coupon-specific thresholds during the weeks that the coupons are distributed, but not in the weeks before and after. We find that the coupons cause large and persistent increases in spending in the targeted spending categories, and we do not find evidence of any substitution away from spending on the platform in “non-targeted” spending categories. We estimate that consumer spending increases in the short run by between 1.4 and 3.7 yuan per yuan spent by the government, implying that the coupons increased spending substantially at very low fiscal cost. We show that a standard consumption model rationalizes these results since the coupons’ spending thresholds create “notches” that lead to large spending responses from the consumers who take up and use the coupons. We then calibrate the model to simulate the effects of counterfactual coupon designs, and we find that lower coupon thresholds would be less cost-effective but would deliver greater aggregate stimulus. (co-authored with Jing Ding, Lei Jiang, and Lucy Msall)

See also: Seminars, Inequality