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

Publication Type

Journal Article

Publication Date

5-2023

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

Discipline

Asian Studies | Behavioral Economics | Public Health

Research Areas

Applied Microeconomics

Publication

Journal of Public Economics

Volume

221

First Page

1

Last Page

17

ISSN

0047-2727

Identifier

10.1016/j.jpubeco.2023.104867

Publisher

Elsevier

Additional URL

https://doi.org/10.1016/j.jpubeco.2023.104867

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