Stimulating Consumption at Low Budget: Evidence from a Large-scale Policy Experiment amid the COVID-19 Pandemic

We use a novel panel with detailed transaction records of more than one million de-identified individuals to study the effect of a large-scale Chinese government-issued digital coupon program on consumer spending. At the core of this stimulus program are a set of salient features that drive the marginal propensity to consume (MPC) to the range of 3.4 to 5.8, an order of magnitude larger than those in previous studies. Testing between different models of consumer behaviors, we find that a behavioral model with mental accounting and loss framing can match the empirical evidence from the field. Our analysis, by illustrating the importance of embedding behavioral factors into the design and implementation of public policy, inform the current debate about cost effective policy tools to recover the economy.