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Can stimulus checks to households save the local economy? The impact of South Korea’s COVID-19 stimulus on small business sales

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  • Kim, Jihee
  • Lee, Susang

Abstract

During economic downturns, stimulus checks are often used to help households but may fail to reach the most affected sectors, such as local small businesses during COVID-19. Although the aggregate impact of these measures is well-studied, their distributional effects on local economies are less explored. Using a difference-in-differences analysis, this study examines weekly local sales data during 2020 from Gyeonggi and Incheon, South Korea, to assess the impact of Gyeonggi’s stimulus, distributed to every household for spending exclusively at local stores, contrasting with Incheon’s lack of such stimulus. We find that Gyeonggi’s stimulus initially boosted local sales by 4.5%, though this impact gradually diminished. This translates into a local-sales multiplier of 1.09, indicating that more than distributed stimulus was spent due to spillover and propagation effects in local in-person spending. Our findings emphasize the importance of tailored fiscal policy designs and assessing the distributional impacts of fiscal measures.

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  • Kim, Jihee & Lee, Susang, 2024. "Can stimulus checks to households save the local economy? The impact of South Korea’s COVID-19 stimulus on small business sales," Economic Analysis and Policy, Elsevier, vol. 84(C), pages 159-176.
    • Handle: RePEc:eee:ecanpo:v:84:y:2024:i:c:p:159-176
    DOI: 10.1016/j.eap.2024.08.017
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    More about this item

    Keywords

    COVID-19; Stimulus payments; Local small businesses;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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