Who spent their COVID-19 stimulus payment? Evidence from personal finance software in Japan

In response to the COVID-19 crisis, governments worldwide have been formulating and implementing different strategies to mitigate its social and economic impacts. We study the household consumption responses to Japan's COVID-19 unconditional cash transfer program. Owing to frequent delays in local governments' administrative procedures, the timing of the payment to households varied unexpectedly. Using this natural experiment, we analyze households' consumption responses to cash transfers using high-frequency data from personal finance management software that links detailed information on expenditure, income, and wealth. We construct three consumption measures: one captures the baseline marginal propensity to consume (MPC), and the other two are for the lower and the upper bound of MPC. Additionally, we explore heterogeneity in MPCs by household income, wealth, and population characteristics, as well as consumption categories. Our results show that households exhibit immediate and non-negligible positive responses in household expenditure. There is significant heterogeneity depending on various household characteristics, with liquidity constraint status being the most crucial factor, in line with the standard consumption theory. Additionally, this study provides policymakers with insights regarding targeted cash transfer programs, conditioning on labor income, and liquidity constraints.