The Marginal Propensity to Consume of 2020 COVID-19 Stimulus Payments in Peru

Abstract

The COVID-19 pandemic has led to unprecedented economic challenges across the world. To combat these challenges, the government of Peru used fiscal stimulus in the form of direct subsidies paid to vulnerable populations for social protection and to stimulate the economy. Using 514 survey responses collected both in-person and online, the objectives of this study were to calculate the marginal propensity to consume (MPC) for Peruvian subsidy recipients and to evaluate the heterogeneity amongst beneficiaries based on four individual factors: pre-pandemic savings, financial inclusion (bank account ownership), survey response type (online vs in-person), and domicile location (residing in Lima Metro or not). Overall, survey responses showed an average MPC of 0.89, which was greater than subsidy-inspired MPC studies from high-income countries like the United States, United Kingdom, and Japan. There was a statistically significant relationship between MPC and liquidity, which corroborated previous studies on MPC from other countries. Relationships between similar programs in Peru and high-income countries for the impact, effectiveness, and purpose of direct stimulus payments are discussed.