APPLIED MICRO: Consumption Sensitivity to Stimulus Payments and Income Nonfungibility; Dr Kamhon Kan (Academia Sinica)

Abstract

We employ a novel identification strategy to quantify the role of income nonfungibility in explaining consumption sensitivity to stimulus payments. It exploits a large-scale stimulus program that converted individuals’ own cash into a labeled form, i.e., a small upfront cash payment was required to receive stimulus vouchers for general spending. Not only does income nonfungibility increase the marginal propensity to consume (MPC) out of the subsidy, but it also accounts for 40%, or 10 percentage points, of the program’s overall MPC. It strongly predicts consumers’ response to stimulus payments and helps explain why MPCs vary substantially across program designs.