Spend as you were told: Evidence from labeled COVID-19 stimulus payments in South Korea

https://doi.org/10.1016/j.jpubeco.2023.104867Get rights and content

Highlights

  • We test the income fungibility assumption from standard economic theory by exploiting unique policy rules of South Korea’s labeled COVID-19 stimulus payments.

  • Using data on card transactions in Seoul, we find that households do not consider stimulus payments fungible.

  • Our results imply that labeled stimulus payments with usage restrictions can boost household consumption spending in targeted sectors or locations during economic recessions.

Abstract

We test the income fungibility assumption from standard economic theory by analyzing spending responses to South Korea’s labeled COVID-19 stimulus payments. We exploit unique policy rules for identification: (1) recipients cannot use payments outside their province of residence, and (2) they can only use payments at establishments in pre-specified sectors. Using data on card transactions in Seoul, we find that households do not consider stimulus payments fungible. Compared to Seoul residents’ benchmark spending responses to cash income gains by sector, the stimulus payments disproportionately increased Seoul residents’ spending in the allowed sector compared to the non-allowed sector. The payments did not increase non-Seoul residents’ card spending. Our results imply that labeled stimulus payments with usage restrictions can boost household consumption spending in targeted sectors or locations during economic recessions.

Keywords

Income fungibility
COVID-19 stimulus payments
Spending
Card transaction data

Data availability

The authors do not have permission to share data publicly, but researchers can visit the Seoul Big Data Campus office to access the raw data used for this study.

Cited by (0)

We thank the co-editor, Damon Jones, and two anonymous referees for their valuable comments and suggestions. We also thank seminar participants at KAIST, Korea University, Seoul National University, Sogang University, Yonsei University, the Korean Economic Assocation annual meeting, and the Korea Labor Economics Association monthly meeting. We are grateful to the Seoul Metropolitan Government Big Data Campus for data access. Kim and Koh acknowledge financial support from the Ministry of Education of the Republic of Korea and the National of Korea (NRF-2021S1A5A2A03064205). Koh acknowledges financial support by Korea University grant (K2306231). The previous version of this paper was circulated as “Do COVID-19 Stimulus Payments Stimulate the Economy?” All errors are on our own.

View Abstract