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

We analyze the impact of South Korea’s one-off COVID-19 stimulus payments on spending using high-frequency, offline card transactions data based on 3.42 billion transactions in Seoul. The Korean stimulus payment policy is distinct because the government mandated the payments to be used only in the province of residence and in the pre-specified sectors (e.g., excluding online transactions and large retailers). We find evidence that the stimulus payments increased card spending in Seoul. Consistent with the spending restrictions, the policy impact is driven by Seoul residents and the sectors allowed by the government. The spending response to the stimulus payments are weaker in areas with higher average income and more cumulative COVID-19 cases, suggesting the importance of liquidity constraints and risk avoidance. Our back-of-the-envelope calculation suggests that households spend 29% of stimulus payments in the first six weeks. We also find that the stimulus payments flowed more to the sectors and areas suffered less during the pandemic, making the economic impact of COVID-19 more unequal.