Impact of cost of revenue transfer in an epidemic

In response to the Covid-19 epidemic, many governments around the world have used direct transfers to families to create financial stimulus. Similar policies have already been used during the 2001 recession and global crisis, where they have been shown to be effective in stimulating household spending (Johnson et al. 2006, Parker et al. 2013). However, the recession caused by the Kovid-19 epidemic is quite different from previous economic recessions. The restrictions imposed by the government and the fear of infection play a role in slowing down the spread of the virus. Therefore, it is an open question whether direct transfers work as well as they seem to have worked in the previous recession. For example, Auerbach et al. (2021) show that the coefficient of defense expenditure was positive only in those cities which were not subject to the house stay order. The Coronavirus Aid, Relief, and Economic Security (CARES) Act significantly varied the estimates of the marginal tendency to consume for U.S. stimulus checks (Baker et al. 2020, Coibion ​​et al. 2020, Parker et al. 2022).

Direct transfer of 450 per child

The German federal government has also provided for direct transfer to families with children, the so-called ‘child bonus’. The purpose of this policy was to reduce the Covid-19 restrictions imposed on households as well as to strengthen overall demand. We use survey data to confirm that families with dependent children report higher income losses at the onset of the Covid-19 epidemic. In a new study, we investigate whether child bonuses actually stimulate measurable use and what factors influence its effectiveness (Goldfayn-Frank et al. 2022). Our study uses scanner data from market research firm Gesellschaft für Konsumforschung (GfK), which records the daily consumption costs of about 10,000 households for non-sustainable products such as food items, and semi-sustainable products such as clothing. We combine daily data of household expenses and randomly distributed payment dates of child bonuses to identify its impact on costs. Thus, we compare the costs of two families, the only difference being that one already received the child bonus while the other did not. One advantage of our study is that we observe actual spending behavior by family and do not have to rely on surveys.

To give us our first detailed idea of ​​whether child bonus costs have increased, in Figure 1 we compare the average monthly household expenses with children without children between July 2020 and June 2021.

Figure 1 Monthly expenses by families with and without children

The bonus was offered in three stages: 200 200 per child in September 2020, 100 100 per child in October 2020 and € 150 per child in May 2021. Looking at Figure 1, we can see the monthly increase in spending by families with children in September 2020. In the case of childless families, however, the average expenditure was fixed over the two months in question. Things are different when it comes to second and third payments. In October 2020, the costs of both groups of households run parallel to the trajectory. In May 2021, families with children spent slightly less than in April, when families without children spent about the same amount. From these descriptive patterns it is understood that only in the first stage of the child bonus the expenditure increased.

To more systematically assess the impact of child bonuses on family expenses, we perform a difference-difference-analysis compared to families who have (still) transferred to those who did not receive it.1 We express our results as an estimate of the marginal tendency to consume, i.e. the percentage of transfers spent within a month.

Figure 2 Estimates of daily impact on total expenditure

Only the first transfer increases the cost

Our analysis shows that the child bonus had a relatively small effect on family expenses. For the first payment, we estimate a marginal tendency to consume about 12%. In other words, of the ব 1 in child bonuses, households spent about 12 percent of the month the transfer was made. As Figure 2 shows, we notice a trend of parallel spending in the days before families move. In the days following the receipt, the treated families temporarily increased their total expenses. The impact was concentrated in the non-sustainable products segment and was driven by households in the districts with low rates of Covid-19 cases. Households with low incomes or liquidity limitations also showed a strong response, although only a small fraction of households reported such limitations. In contrast, households with high savings rates only respond poorly to child bonuses. The cost effect is not systematically related to the local labor market situation or the rigidity of the local coronavirus response system. Furthermore, we do not find that there was any cost effect due to the announcement of the transfer. The number of family contacts due to economic activity, measured by the number of stores they have visited, has increased due to the child bonus. Online shopping has played a relatively small role. This implies that the rate of transition from increased economic activity may also have a reactionary effect. One such mechanism is a feature of models that integrates both macroeconomic and epidemiological dynamics (Eichenbaum et al. 2021).

During the second and third transfers, the rate of infection was much higher

We do not identify any significant cost effects for the second and third installments of the Child Bonus. Taken together, this gives an overall marginal tendency to spend only 5% for the three parts of the child bonus added together. The absence of a cost response for second and third transfer payments may be associated with persistently high savings rates in the population, as well as significantly higher transition rates in the second and third payout months. We do not find evidence that different transfer sizes play a role in explaining the zero effect for subsequent payments. Finally, even if spending on sustainable consumer goods and services, which are not covered by our data, shows a similar increase, the marginal tendency to consume would be about 14%.

Redistribution instead of stimulus

Overall, the child bonus seems to have applied only a limited cost stimulus. This is partly due to the specific nature of the epidemic context, which serves to hinder the effectiveness of the transfer. Our results are consistent with the results of Parker et al. (2022), who report a marginal tendency to spend about 10% for economic impact payments, which were also paid in 2020 as direct transfers to U.S. citizens. In contrast, other studies have shown that temporary VAT cuts in Germany have resulted in a significant increase in usage (Bachmann et al. 2021). So the child bonus does not act as a stabilizer of economic activity but as a redistributive instrument.

Author’s note: The views expressed here do not necessarily reflect those of Deutsche Bundesbank or Eurosystem.


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1 We use the estimation proposed by Sun & Abraham (2021) which is strong for heterogeneous treatment effects.

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