2020
Language:
English

"Quick Response" Economic Stimulus: The Effect of Small-Value Digital Coupons on Spending

We study a new consumption stimulus model that leverages mobile payment platforms to dispense massive amounts of small-value, use-it-this-week-or-lose-it digital coupons. We evaluate the effects of one such program in a large Chinese city using novel data of mobile platform transactions of 1 million program participants. Exploiting participants’ rush to the first-come, first-served digital portal, we compare spending among those who barely won coupons to those who barely lost because of minor differences in the timing of their arrival at the portal. We find that coupons generate an immediate increase in weekly consumption among winners by $3 additional out-of-pocket spending for every $1 in government subsidy – representing an order-of-magnitude improvement in fiscal cost-benefit relative to a traditional cash-based stimulus. Analysis of business customer flows suggests that coupons distort consumption toward more expensive options, leading the program to disproportionately favor big firms that sell pricier goods and services. Relaxing coupons’ minimum spending requirements would alleviate such distributional concern without sacrificing consumer welfare. We conclude that the coupon model can be a useful addition to policy makers’ stimulus toolbox.