BOK: Last Year's Consumption Coupons Raised GDP by 0.12%... 'Maximizing Effectiveness' Requires Precise Policy Design

BOK Issue Note: Assessing the Economic Effects of Livelihood Recovery Consumption Coupons
Receiving a 100,000 Won Coupon Leads to 20,000 Won in Additional Consumption
Coupon Effects Last 1–2 Months, Stronger Impact in Non-Metropolitan Regions an

The government’s “livelihood recovery” consumption coupons, distributed to all citizens last year, had a positive impact on household spending and sales at participating merchants, resulting in a 0.12% increase in gross domestic product (GDP). However, experts point out that, as this is a policy suitable for short-term measures, precise planning of the policy’s timing, the differentiated support method, and eligible merchants is needed to maximize its economic effect.

According to the “BOK Issue Note: Assessment of the Economic Effect of Livelihood Recovery Consumption Coupons (Ha Jeongseok, Yang Junbin, Kim Namju, Ryu Jeongseok, Cho Insik)” released by the Bank of Korea on June 10, the marginal propensity to consume (MPC) for these coupons was found to be 0.20. This means that, on average, households who received a 100,000 won consumption coupon increased their new consumption by about 20,000 won. This figure is somewhat lower than the estimated MPC of 0.19–0.42 for the COVID-19 consumption support funds.

Previously, the government distributed consumption coupons twice last year in the form of credit cards, local community gift certificates, and prepaid cards. The Bank of Korea built a big data set of credit card sales, where usage amounts could be verified, to analyze the sales boost effect, and conducted two self-reported surveys to review the stimulus effect on consumption.

By income level, the data showed that the lower the income, the higher the MPC for the consumption coupons. In the bottom 20% income group, the MPC was 0.25, whereas in the top 20% it was only 0.17. In terms of usage period, 88.8% of the first round and 72% of the second round of consumption coupons were used within four weeks of being issued.

On average, the monthly sales per merchant accepting consumption coupons increased by 2.91% more than non-participating merchants. By region, sales at merchants in non-metropolitan areas and depopulating regions increased by 6.37% and 5.51%, respectively, showing a much greater effect than in the metropolitan area, which saw a -0.04% change. Ha Jeongseok, Manager of the Fiscal and Industry Team in the Research Department at the Bank of Korea, explained, “There was a higher volume of consumption coupons distributed in non-metropolitan and rural depopulating areas, and in the metropolitan area, sales at non-participating merchants remained relatively stable, so the gap in sales between participating and non-participating merchants was smaller.”

By industry, the sales boost was most pronounced in general merchandise stores such as clothing, groceries, and optical shops (8.32%), in casual restaurants (5.84%), and in leisure and recreation-related businesses (5.39%). In contrast, sales at private academies (-9.25%) and hospitals/clinics (-5.91%) decreased compared to non-participating merchants. The Bank of Korea analyzed this as a result of increased household disposable income leading to greater spending at larger-scale institutions such as hospitals and clinics. In terms of timing, the effect of consumption coupons lasted for about two months after the larger first round of distribution and for one month after the second round.

Nationally, the additional sales boost at participating merchants is estimated at about 2.8 trillion won (30.9%) out of the 9.1 trillion won distributed via credit cards. Taking into account both the sales increase at participating merchants and the stimulation of household consumption, the Bank of Korea estimated that the annual GDP growth effect of last year’s livelihood recovery consumption coupons was about 0.12% (ranging from 0.07% to 0.15%).

Experts say that in order to maximize the economic effect of future consumption coupons, careful design regarding the timing of the policy, the method of differentiated support, and the selection of participating merchants is essential. Ha also remarked, “The policy route—where the increase in household disposable income from consumption coupons actually led to increased consumption and sales at participating merchants, thereby raising the economic growth rate—proved to be effective.” He added, “There is a certain effect of differentiation by income level,” and emphasized, “We need to thoughtfully consider how and how much to differentiate support by income and region.”

This content was produced with the assistance of AI translation services.