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Consumer-Financed Fiscal Stimulus: Evidence from Digital Coupons in China
Matthew Notowidigdo, Professor of Economics, University of Chicago
Abstract: We study a new form of economic stimulus undertaken by municipalities across China starting in 2020: government-issued digital coupons designed to encourage spending in certain categories such as restaurants, groceries, and entertainment. Using unique account-level and transaction-level data from a large online shopping platform that distributed the coupons, we estimate the effects of the coupons on spending for many different types of coupons with different spending thresholds (e.g., “Spend at least ¥X, get ¥Y off”). We identify the effects of the coupons on spending using a bunching estimator that uses the transaction-level spending distribution in the weeks before each coupon is distributed as the counterfactual. We present clear visual evidence of sharp bunching at coupon-specific thresholds during the weeks that the coupons are distributed, but not in the weeks before and after. We find that the coupons cause large and persistent increases in spending in the targeted spending categories, and we do not find evidence of any substitution away from spending on the platform in “non-targeted” spending categories. We estimate that consumer spending increases in the short run by between 1.4 and 3.7 yuan per yuan spent by the government, implying that the coupons increased spending substantially at very low fiscal cost. We show that a standard consumption model rationalizes these results since the coupons’ spending thresholds create “notches” that lead to large spending responses from the consumers who take up and use the coupons. We then calibrate the model to simulate the effects of counterfactual coupon designs, and we find that lower coupon thresholds would be less cost-effective but would deliver greater aggregate stimulus. (co-authored with Jing Ding, Lei Jiang, and Lucy Msall)
Matthew Notowidigdo is Professor of Economics at the University of Chicago Booth School of Business. He studies a broad set of topics in labor economics and health economics. In labor economics, his research has focused on understanding the causes and consequences of long-term unemployment and the economic effects of unemployment insurance over the business cycle. Notowidigdo’s research in health economics focuses on the effects of public health insurance on labor supply and the effects of income on health spending. He is currently working with several state governments on large-scale randomized experiments of existing social insurance programs. Outside of academia, Notowidigdo has corporate experience as an associate at Lehman Brothers in the Fixed Income Division, and he has consulted for several professional sports teams on ticket pricing. Within academia he has teaching experience at both the undergraduate and graduate level, and he was honored with the distinction of the Carleton E. Tucker Award for Teaching Excellence in 2004. Notowidigdo studied at the Massachusetts Institute of Technology before joining Chicago Booth in 2010 as an Assistant Professor. In 2014, he joined the Department of Economics at Northwestern University as Associate Professor of Economics. In 2020, Notowidigo returned to Booth as Professor of Economics. He holds a BS in economics, a BS in computer engineering, a MEng in computer science, and a PhD in economics.
