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 3.1–3.2 yuan per yuan spent by the government. The large spending responses do not come from substitution away from nontargeted 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. (JEL D15, E21, H72, L81, O18, P25, P36)