ABSTRACT
This paper uses transaction-level bank account data from Denmark to study the dynamics of consumer spending during the Covid-19 pandemic. We document that aggregate spending initially dropped by almost 30% but recovered almost fully after the first wave. While spending plummeted in categories severely affected by supply restrictions, it increased in unaffected categories. Individual exposure to health risks and supply restrictions was associated with much larger spending cuts than exposure to income risk and unemployment. The findings suggest that the contraction was mainly caused by temporary health risks and supply restrictions, with a limited role for persistent negative spill-overs. This article is protected by copyright. All rights reserved.
ABSTRACT
This paper uses real-time transaction data from a large bank in Scandinavia to estimate the effect of social distancing laws on consumer spending in the coronavirus 2019 (COVID-19) pandemic. The analysis exploits a natural experiment to disentangle the effects of the virus and the laws aiming to contain it: Denmark and Sweden were similarly exposed to the pandemic but only Denmark imposed significant restrictions on social and economic activities. We estimate that aggregate spending dropped by around 25% (95% CI: 24 to 26%) in Sweden and, as a result of the shutdown, by 4 additional percentage points (95% CI: 3 to 5 percentage points [p.p.]) in Denmark. This suggests that most of the economic contraction is caused by the virus itself and occurs regardless of social distancing laws. The age gradient in the estimates suggests that social distancing reinforces the virus-induced drop in spending for low-health-risk individuals but attenuates it for high-risk individuals by lowering the overall prevalence of the virus in the society.