During the Great Recession and the COVID-19 pandemic, the US government distributed billions of dollars directly to households through broad-based stimulus payments and targeted policies such as the “cash for clunkers” program and the first-time homebuyer tax credit. The Chinese government had stimulus programs, too, including one that involved digital coupons. As the pandemic ravaged China’s economy in 2020 and 2021, local governments offered consumers digital coupons that provided discounts on restaurant meals, food delivery, groceries, entertainment, and other targeted categories if they spent a certain amount.
That strategy may have been more effective at spurring consumption than the broad-brush cash giveaways—at a lower cost to the government, according to Harbin Institute of Technology’s Jing Ding, Tsinghua University’s Lei Jiang, Chicago Booth PhD student Lucy Msall, and Booth’s Matthew Notowidigdo. The coupons succeeded in making sure people spent the money to bolster the economy rather than socking cash away in savings accounts, plus each yuan spent on the coupons by government units resulted in close to 3 yuan in additional consumer spending, the researchers find.
They analyzed a sample of more than 651,000 supermarket and food-delivery coupons released across three cities in China in February, July, August, October, and November 2021. City authorities distributed the coupons through smartphone apps and across several provinces and municipalities, and the minimum spending level and useful life varied by city.
Under the program, consumers had to cross relatively low fixed-spending thresholds—generally less than 120 yuan (USD$17.15)—to get discounts of 25–50 percent of the threshold amount. In one city in October, it took just 4 seconds for consumers to snap up an entire offering of 6,000 coupons for food delivery, hotel rooms, and restaurants, while a second offering of 3,000 went in 16 seconds.
The many transactions made at the coupon threshold suggests to the researchers that some shoppers spent more than they otherwise would have to redeem the discount.
To determine the increase in consumption spurred by the coupons relative to the cost to the government of distributing the coupons, the researchers analyzed the distribution of spending in the three months before the coupons were distributed and compared it with spending up to three months after the coupons expired.
Consumers using the coupons spent more on the targeted categories than they otherwise would have without reducing their purchases of nontargeted categories, according to the study. The additional spending was greater than the levels generated by tax rebates, stimulus payments, and other shopping coupon programs that lacked spending thresholds.
The researchers also analyzed consumer spending patterns and developed a model to estimate the effect of coupons on consumer welfare. They find that the social benefit was about half of what it would have been had the local governments simply passed out the equivalent amount in unrestricted cash, but the cash wouldn’t have generated as much spending in the targeted consumption categories.
The findings “suggest that the digital coupons may be a particularly cost-effective way to provide targeted fiscal stimulus to specific sectors,” the researchers write. The additional spending was large and persisted for several weeks.
Jing Ding, Lei Jiang, Lucy Msall, and Matthew Notowidigdo, “Consumer-Financed Fiscal Stimulus: Evidence from Digital Coupons in China,” Working paper, July 2023.
Chicago Booth’s Jean-Pierre Dubé discusses the benefits of personalizing fines according to people's means.
Should Billionaires Pay Higher Fines?
An analysis of the 2023 bank failures assesses their hits and misses.
US Bank Regulators Could Have Averted $9 Billion in Losses
But the pandemic-era moratorium may also have led some borrowers to take on even more debt.
Pausing Student-Loan Payments Boosted the EconomyYour Privacy
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.