Do COVID-19 Stimulus Payments Stimulate the Economy? Evidence from Card Transaction Data in South Korea

We analyze the spending impact of South Korea’s COVID-19 stimulus payments, worth up to KRW 1 million (US$887 or €755) per household, using data on card transactions in Seoul. To catalyze the recovery of sales losses during the COVID-19 outbreak for small businesses, the Korean government restricted the use of stimulus payments to be spent in the province of residence, at establishments in pre-specified sectors. We exploit these unique policy rules to study the spending response to the stimulus payments. We find that the stimulus payments discontinuously increased Seoul residents’ offline card spending by 21.6% one week after the disbursement, and the positive impact dissipated over the following six weeks in allowed sectors and areas. The implied marginal propensity to consume out of the stimulus payments was 24%. The estimated spending responses to the stimulus payments were weaker in areas with higher average income and more cumulative COVID-19 cases. We also find that the stimulus payments flowed more to the sectors and areas that suffered less during the pandemic.

Download the paper