Micro-Evidence on theConsumption Impact ofIncome-Support PoliciesDuring COVID-19 Metodij Hadzi-Vaskov, Emiliano Luttini, Luca Antonio Ricci WP/25/64 IMF Working Papersdescribe research inprogress by the author(s) and are published toelicit comments and to encourage debate.The views expressed in IMF Working Papers arethose of the author(s) and do not necessarilyrepresent the views of the IMF, its Executive Board,or IMF management. 2025APR IMF Working Paper Western Hemisphere Department Micro-Evidence on the Consumption Impact of Income-Support Policies During COVID-19Prepared by Metodij Hadzi-Vaskov, Emiliano Luttini, Luca Antonio Ricci* Authorized for distribution by Andrea SchaechterApril2025 IMF Working Papersdescribe research in progress by the author(s) and are published to elicitcomments and to encourage debate.The views expressed in IMF Working Papers are those of theauthor(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. ABSTRACT:Income-support policies can boost consumption during a catastrophic episode like the COVID-19pandemic. Using data on Chilean municipalities, we investigate the impact on private consumption of income-support policies, such as lump-sum trans-fers and withdrawals of funds from the contributors’ mandatorypension accounts. We find that both emergency income and pension withdrawals had statistically sig-nificanteffects with an estimated average marginal propensity to consume of about 20 percent. Consumption ofdurable goods is more sensitive to these policies than other goods, especially in the programs’ initial stages.Higher educational attainment and financial leverage, proxying better access to bank credit, are associated withweaker consumption reaction across municipalities. 1Introduction The COVID-19 pandemic shock triggered a need to implement mobility constraints torestrict social interactions and limit the spread of the virus. At the same time, however,the mobility constraints led to a significant decline of economic activity and a deteriora-tion of labor market conditions, manifested through a rise in unemployment and a fallin wage earnings across various parts of the world. In this context, many countries de-ployed income-support programs to mitigate the negative impact of the pandemic andthe related restrictions on households and firms. Policymakers in Chile introduced policies targeting people’s mobility to limit thespread of the virus at the early stage of the pandemic.From April 2020 until the endof July 2020, the government instituted a system ofRotating lockdown: depending on therate of contagiousness, a given municipality was subjected to a lockdown. The mobilityconstraint after July evolved into a five-step plan,Step by step plan, where the first twosteps involved some degree of confinement measures, and the last three did not restrictmobility. As the mobility constraints and the fear of social interaction were resulting in largeeconomic losses, the government implemented income-support programs to mitigate thepandemic’s negative effect on the household sector. In May 2020, the government startedexecuting the Emergency Family Income program, whose main feature was to providelump-sum transfers to individuals in the most vulnerable segments of the society. Ini-tially thought to last four months, the program faced several extensions into 2021. An-other measure aimed at supporting household incomes was the policy that allowed thecontributors to the private pension system to withdraw up to ten percent of their manda-tory accounts on three different occasions: August 2020, December 2020, and April 2021.As these funds are property of the contributor to the pension system, these withdrawalswould be expected to have a null effect on consumption if Ricardian equivalence wereto hold. In fact, one of the key findings of this paper is that the evidence resoundinglyrejects that supposition. In this paper, we quantify the impact of Emergency Family Income, and pension with-drawal programs (jointly referred to as income-support policies) as well as mobility con-straints on consumption during the peak phase of the pandemic (2020-21). We exploitthe cross-municipality exposure to these policies to identify the effect on consumption.1The lowest level of aggregation that we observe in consumption data is at the municipal- ity level, and we construct municipality level consumption data using retailers’ debit andcredit card spending information. All the other variables we employ in the analysis arealso based on a similar level of aggregation. Our strategy relies on accounting for pre-pandemic historical cross-municipality het-erogeneity to mitigate challenges and strengthen identification of the income-supportpolicies’ effects. Given that income-support policies were determined by pre-pandemicmunicipality-household characteristics, their impact could vary according to these initialconditions and thus bias our results. Fo