Public economics

Finance

Sociology

Government (linguistics)

Consumption (sociology)

Mathematics

Social science

Subsidy

Transaction cost

Welfare

Statistics

Philosophy

Survey data collection

Economics

Microeconomics

Exchange rate

Coupon

Linguistics

Monetary economics

Government spending

Market economy

Renminbi

Management Science

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. Exploiting a difference-in-differences approach, we find that the digital coupon is highly effective in stimulating consumption. An effective government subsidy of RMB 1 can drive excess spending of RMB 3.4 to RMB 5.8, and the effect persists across multiple coupon issuance waves. In explaining the results, we find that a behavioral model with mental accounting and loss aversion 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, informs the current debate about cost-effective policy tools to recover the economy. This paper was accepted by Matthew Shum, marketing.

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