The small-value short-duration digital coupon issued by local governments in China is highly effective in driving excess consumption.
In response to the significant economic contraction caused by the COVID-19 pandemic, many local governments in China have experimented with an innovative policy tool to stimulate consumption, the digital consumption coupon program. The program departs from other commonly adopted fiscal stimulus programs such as cash payment or tax rebate in several salient ways. First, the coupon typically takes the form of saving with certain amount of spending, e.g. “spend RMB 40, get RMB 10 off,” and hence has the nature of “use-it-or-lose-it.” Second, the coupons are of small face value and short duration, and involve a small amount of government subsidy per voucher. Third, the coupons are disbursed through mobile payment platform with limited quantity in each round.
Using the high-frequency transaction-level data of more than one million de-identified consumers, the authors evaluate the effectiveness of the digital coupon program in a major city in China. Exploiting a difference-in-differences approach, they find that the consumers who successfully acquired the government coupon spent significantly more during the coupon redemption week compared to similar individuals who applied but failed to acquire the coupon due to limited quantity. Defining MPC as the ratio of excess spending over the effective amount of government subsidy, they find the MPC ranges from 3.4 to 5.8 across several waves of coupon issuance. The excess spending mostly concentrates in the catering services and food and drinks purchases. The authors do not find significant intertemporal substitution of consumption. In addition, the coupon effect does not wear out over multiple waves of the program. Behavioral factors such as mental accounting and loss framing are likely to play a role in the underlying mechanism.