The Consumption Response to Universal Payments : Evidence from a Natural Experiment

We investigate the impact of the universal stimulus payments (100-350 thousand KRW per person) distributed by the largest Korean province of Gyeonggi under the COVID-19 pandemic on household consumption using large-scale credit and debit card data from the Korea Credit Bureau. As the neighboring Incheon metropolitan city did not distribute stimulus payments, we employ a difference-in-difference approach and find that the stimulus payments increased monthly consumption per person by approximately 30 thousand KRW within the first 20 days. The overall MPC of the payments was approximately 0.40 for single families. The MPC decreased from 0.58 to 0.36 as the transfer size increased from 100-150 to 300-350 thousand KRW. We also find that universal payments had a very heterogeneous effect on different groups of people. The MPC for liquidity-constrained households, which account for 8% of residents, was close to one, but the MPCs of the other household groups were not significantly different from zero. The unconditional quantile treatment effect estimates reveal that there was a positive and significant increase in monthly consumption only on the lower part of the distribution below the median. Our results show that a more targeted approach may more efficiently achieve the policy goal of boosting aggregate demand