Consumer-Financed Fiscal Stimulus : Evidence from Digital Coupons in China

In 2020, local governments in China began issuing digital coupons to stimulate spending in targeted categories such as restaurants and supermarkets. Using data from a large e-commerce platform and a bunching estimation approach, we find that the coupons caused large increases in spending of 3.1-3.3 yuan per yuan spent by the government. The large spending responses do not come from substitution away from non-targeted spending categories or from short-run intertemporal substitution. To rationalize these results, we develop a dynamic consumption model showing how coupons' minimum spending thresholds create temporary notches that lead to large spending responses