Consumption responses to COVID-19 payments: Evidence from a natural experiment and bank account data

We document households' spending responses to a stimulus payment in Japan during the COVID-19 pandemic. In response to the pandemic, the Japanese government launched a universal cash entitlement program offering a sizable lump sum of money to all residents to alleviate the financial burden of the pandemic on households. The timings of cash deposits varied substantially across households due to unexpected delays in administrative procedures. Using a unique panel of 2.8 million bank accounts, we find an immediate jump in spending during the week of payments, followed by moderately elevated levels of spending that persist for more than one month after payments are received. We also document sizable heterogeneity in consumption responses by recipients' financial status and demographic characteristics. In particular, demand deposit balances play a more crucial role than other financial asset holdings, suggesting the importance of the wealthy hand-to-mouth.