IDEAS home Printed from https://ideas.repec.org/a/bla/pacecr/v27y2022i4p340-360.html
   My bibliography  Save this article

Effect of COVID‐19 stimulus payments on sales of local small businesses: Quasi‐experimental evidence from Korea

Author

Listed:
  • Hoon Choi

Abstract

This paper examines how sales of local small businesses can be promoted through COVID‐19 stimulus payments. In the beginning of April, 2020, The 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 the Gyeonggi 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 the Gyeonggi local currency, relative to other establishments. The estimated overall spending effect of 4.1% persisted over three weeks, and the effects are 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.

Suggested Citation

  • Hoon Choi, 2022. "Effect of COVID‐19 stimulus payments on sales of local small businesses: Quasi‐experimental evidence from Korea," Pacific Economic Review, Wiley Blackwell, vol. 27(4), pages 340-360, October.
    • Handle: RePEc:bla:pacecr:v:27:y:2022:i:4:p:340-360
    DOI: 10.1111/1468-0106.12407
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1468-0106.12407
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1468-0106.12407?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Veronica Guerrieri & Guido Lorenzoni & Ludwig Straub & Iván Werning, 2022. "Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages?," American Economic Review, American Economic Association, vol. 112(5), pages 1437-1474, May.
    2. Olivier Coibion & Yuriy Gorodnichenko & Michael Weber, 2020. "How Did U.S. Consumers Use Their Stimulus Payments?," Working Papers 2020-109, Becker Friedman Institute for Research In Economics.
    3. Scott R. Baker & Robert A Farrokhnia & Steffen Meyer & Michaela Pagel & Constantine Yannelis, 2023. "Income, Liquidity, and the Consumption Response to the 2020 Economic Stimulus Payments," Review of Finance, European Finance Association, vol. 27(6), pages 2271-2304.
    4. Jonathan A. Parker & Nicholas S. Souleles & David S. Johnson & Robert McClelland, 2013. "Consumer Spending and the Economic Stimulus Payments of 2008," American Economic Review, American Economic Association, vol. 103(6), pages 2530-2553, October.
    5. Nicholas S. Souleles & Jonathan A. Parker & David S. Johnson, 2006. "Household Expenditure and the Income Tax Rebates of 2001," American Economic Review, American Economic Association, vol. 96(5), pages 1589-1610, December.
    6. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 249-275.
    7. Justine Hastings & Jesse M. Shapiro, 2018. "How Are SNAP Benefits Spent? Evidence from a Retail Panel," American Economic Review, American Economic Association, vol. 108(12), pages 3493-3540, December.
    8. Zavodny, Madeline, 2000. "The Effects of Official English Laws on Limited-English-Proficient Workers," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 427-452, July.
    9. Michiru Kaneda & So Kubota & Satoshi Tanaka, 2021. "Who spent their COVID-19 stimulus payment? Evidence from personal finance software in Japan," The Japanese Economic Review, Springer, vol. 72(3), pages 409-437, July.
    10. Hsieh, Chang-Tai & Shimizutani, Satoshi & Hori, Masahiro, 2010. "Did Japan's shopping coupon program increase spending?," Journal of Public Economics, Elsevier, vol. 94(7-8), pages 523-529, August.
    11. Peter Kooreman, 2000. "The Labeling Effect of a Child Benefit System," American Economic Review, American Economic Association, vol. 90(3), pages 571-583, June.
    12. Kubota, So & Onishi, Koichiro & Toyama, Yuta, 2021. "Consumption responses to COVID-19 payments: Evidence from a natural experiment and bank account data," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 1-17.
    13. Beatty, Timothy K.M. & Blow, Laura & Crossley, Thomas F. & O'Dea, Cormac, 2014. "Cash by any other name? Evidence on labeling from the UK Winter Fuel Payment," Journal of Public Economics, Elsevier, vol. 118(C), pages 86-96.
    14. Kamhon Kan & Shin-Kun Peng & Ping Wang, 2017. "Understanding Consumption Behavior: Evidence from Consumers' Reaction to Shopping Vouchers," American Economic Journal: Economic Policy, American Economic Association, vol. 9(1), pages 137-153, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bernard, René, 2023. "Mental accounting and the marginal propensity to consume," Discussion Papers 13/2023, Deutsche Bundesbank.
    2. Qiao Liu & Qiaowei Shen & Zhenghua Li & Shu Chen, 2021. "Stimulating Consumption at Low Budget: Evidence from a Large-Scale Policy Experiment Amid the COVID-19 Pandemic," Management Science, INFORMS, vol. 67(12), pages 7291-7307, December.
    3. Choi, Hoon, 2021. "The effect of COVID-19 stimulus payments on sales of local small businesses: Quasi-experimental evidence from Korea," MPRA Paper 108587, University Library of Munich, Germany.
    4. Jianwei Xing & Eric Yongchen Zou & Zhentoa Yin & Yong Wang & Zhenhua Li, 2023. ""Quick Response" Economic Stimulus: The Effect of Small-Value Digital Coupons on Spending," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(4), pages 249-304, October.
    5. Ezra Karger & Aastha Rajan, 2020. "Heterogeneity in the Marginal Propensity to Consume: Evidence from Covid-19 Stimulus Payments," Working Paper Series WP-2020-15, Federal Reserve Bank of Chicago, revised 21 Feb 2021.
    6. Kubota, So & Onishi, Koichiro & Toyama, Yuta, 2021. "Consumption responses to COVID-19 payments: Evidence from a natural experiment and bank account data," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 1-17.
    7. Seungjun Baek & Seongeun Kim & Tae-hwan Rhee & Wonmun Shin, 2023. "How effective are universal payments for raising consumption? Evidence from a natural experiment," Empirical Economics, Springer, vol. 65(5), pages 2181-2211, November.
    8. UNAYAMA Takashi & KOMURA Norihiro & HATTORI Takahiro, 2021. "Impacts of Cash Transfers on Consumption during the COVID-19 Pandemic: Evidence from Japanese Special Cash Payment (Japanese)," Discussion Papers (Japanese) 21022, Research Institute of Economy, Trade and Industry (RIETI).
    9. Kim, Seonghoon & Koh, Kanghyock & Lyou, Wonjun, 2023. "Spend as you were told: Evidence from labeled COVID-19 stimulus payments in South Korea," Journal of Public Economics, Elsevier, vol. 221(C).
    10. Hackethal, Andreas & Weber, Annika, 2020. "Fiscal policies and household consumption during the COVID-19 pandemic: A review of early evidence," SAFE White Paper Series 76, Leibniz Institute for Financial Research SAFE.
    11. Kozo UEDA, 2023. "Marginal Propensity to Consume and Personal Characteristics: Evidence from Bank Transaction Data and Survey," CIGS Working Paper Series 23-007E, The Canon Institute for Global Studies.
    12. Michiru Kaneda & So Kubota & Satoshi Tanaka, 2021. "Who spent their COVID-19 stimulus payment? Evidence from personal finance software in Japan," The Japanese Economic Review, Springer, vol. 72(3), pages 409-437, July.
    13. Kim, Meeroo & Oh, Yoon Hae, 2021. "The Impact of COVID-19 Regional Cash Subsidies on the Sales of Local Businesses in South Korea," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 43(2), pages 103-123.
    14. María Pía Olivero & Mikheil Dvalishvili, 2023. "What do fiscal stimulus packages mean for household debt?," Contemporary Economic Policy, Western Economic Association International, vol. 41(2), pages 282-299, April.
    15. Victoria Baudisch & Matthias Neuenkirch, 2023. "Costly, but (Relatively) Ineffective? An Assessment of Germany’s Temporary VAT Rate Reduction During the Covid-19 Pandemic," Research Papers in Economics 2023-04, University of Trier, Department of Economics.
    16. Ku, Inhoe & Ham, Sunyu & Moon, Heyjin, 2023. "Means-tested COVID-19 stimulus payment and consumer spending: Evidence from card transaction data in South Korea," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1359-1371.
    17. Kanishka Misra & Vishal Singh & Qianyun (Poppy) Zhang, 2022. "Frontiers: Impact of Stay-at-Home-Orders and Cost-of-Living on Stimulus Response: Evidence from the CARES Act," Marketing Science, INFORMS, vol. 41(2), pages 211-229, March.
    18. Peter Ganong & Damon Jones & Pascal Noel & Diana Farrell & Fiona Greig & Chris Wheat, 2020. "Wealth, Race, and Consumption Smoothing of Typical Income Shocks," Working Papers 2020-49, Becker Friedman Institute for Research In Economics.
    19. Asger Lau Andersen & Emil Toft Hansen & Niels Johannesen & Adam Sheridan, 2022. "Consumer responses to the COVID‐19 crisis: evidence from bank account transaction data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(4), pages 905-929, October.
    20. Bernard, René, 2022. "Mental Accounting and the Marginal Propensity to Consume," VfS Annual Conference 2022 (Basel): Big Data in Economics 264186, Verein für Socialpolitik / German Economic Association.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:pacecr:v:27:y:2022:i:4:p:340-360. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1361-374X .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.