The effect of COVID-19 stimulus payments on sales of local small businesses: Quasi-experimental evidence from Korea

This paper examines how sales of local small businesses can be promoted through COVID-19 stimulus payments. In the beginning of April, 2020, Gyeonggi provincial government in Korea implemented a stimulus payment program worth up to 500 thousand Korean Won (416 US dollars) per person to encourage local consumption. By exploiting unique features of the stimulus payments that restricted the use of the payments in the municipality of residence at establishments accepting local currency, the paper identifies the treatment effect of the stimulus payments, taking a difference-in-difference-in-differences approach. The results suggest that the stimulus payments led to significant increases in card spending in establishments accepting local currency, relative to other establishments. The estimated overall spending effect of 4.1% persisted over three weeks, and the effect is heterogeneous across sectors. While the estimated spending effect of the stimulus payments is larger among sectors such as groceries, furniture, and beauty, sectors such as restaurants, leisure, and travel that experienced substantial sales losses did not gain much from the stimulus payments. This suggests that targeting sectors the most severely affected can be a more effective policy measure in terms of alleviating the gaps in COVID-19 induced economic losses across sectors.