Consumption and Debt Response to Fiscal Stimuli: Evidence from a Large Panel of Consumers in Singapore

This paper uses a unique panel data set of consumer financial transactions to study how consumers respond to exogenous income shocks. Specifically, we study how their spending behavior on their credit card, debit card and bank checking account responds to a positive income shock. Our analysis is based on a difference-in-differences identification by exploiting the qualification criteria—foreigners do not qualify for the program. We find that consumption rose significantly subsequent to the fiscal policy announcement, for each dollar received, consumers on average spend 90 cents, during the ten months upon announcement. There was a moderate decrease in debt. We find a strong announcement effect -- consumers increase spending on their credit cards during the two-month announcement period, but they switched to debit cards after disbursement, before finally increasing spending on the credit card in the later months. Consistently, credit card debt dropped in the first months after disbursement and reverted back to the original level. Finally, consumption response is heterogeneous across spending categories and across individuals. Consumption rose primarily in the non-food, discretionary category. The consumption response is driven by liquidity constrained consumers, and the spending response of the credit constrained consumers is dominated by that of the liquidity constrained consumers.