- The COVID-19 pandemic forced governments to design and deliver targeted and effective support measures for households.
- Researchers have analyzed data to assess the attitudes of respondents to the fiscal support measures provided.
- They also investigated the link between perceptions and spending behaviour on big-ticket items like holidays and cars.
The COVID-19 shock affected different individuals and households differently. This posed a dramatic challenge to fiscal authorities, which needed to design and channel fiscal measures that were targeted, effective, and efficiently allocated. Support measures ranged from traditional social security provisions, delivered through existing social welfare programmes, to more time-specific and pandemic-specific direct financial support and subsidies, including in-kind support (e.g. childcare) as well as loan and other payment guarantees or moratoria (e.g. on rents). In addition, governments supported households indirectly by providing assistance to firms and employers (e.g. through direct employment subsidies).
Understanding households’ perceptions of these support measures is important for the optimal design, communication, and subsequent evaluation of such policies. In a new study (Georgarakos and Kenny 2022), we use the ECB Consumer Expectations Survey (CES), a new online, high-frequency panel survey of euro area consumers’ expectations and behaviour, which offers a unique resource that can be used to shed light on these perceptions and how they are associated with household spending. As shown in Figure 1, data from the CES underscore that interventions were highly targeted. For example, just under 30% of respondents in the CES indicated that they themselves had received some form of government support, while the remaining respondents indicated that they had received no support. Furthermore, a closer look at the data reveals that the support reached households that were most in need with, for example, a higher fraction of households in the two lowest income quintiles receiving support (see also Lane 2021). Some of the main forms of support included compensation for lost earnings (e.g. resulting from lockdown restrictions), and help with regular expenses (e.g. food and energy bills) and the payment of rents or loan commitments, as well as indirect support through government assistance for firms and employers.
Figure 1 Types of pandemic-related government support in 2020
(percentages of respondents indicating that they received support, by type)
Notes: The figures are weighted aggregates. Respondents were asked to reply to the question “In response to the coronavirus (COVID-19) outbreak, governments are introducing policies to support households, workers and businesses. Please indicate whether your household has received such support in any of the following forms since January 2020”. They were able to select multiple answers from a list of direct and indirect support measures, as shown on the horizontal axis in the chart.
Perceptions about the adequacy of government support
Not surprisingly, the highly varied nature of the financial and non-financial needs generated in the course of the pandemic, coupled with the multi-faceted nature of the government measures (as depicted in Figure 1), led to disparate public perceptions about the overall adequacy of fiscal support policies. To gauge these perceptions, we asked CES respondents to directly assess the adequacy of fiscal support measures for the financial wellbeing of their household. This equips us with a common metric across households who have different needs and characteristics and who may or may not have received fiscal support in its various possible forms. One finding we obtain is that respondents who received support generally perceive fiscal interventions to be more adequate (Figure 2). In addition, the survey results highlight some significant differences and time-variation across countries, with fiscal interventions generally perceived to be less adequate in countries that were more heavily affected by the initial COVID-19 outbreak.
Figure 2 Perceived adequacy of government support in the euro area
(x-axis: average perceived adequacy in a range from 0 (very poor) to 10 (very good))
Notes: The figures are weighted aggregates. Respondents were asked to reply to the question “Governments are taking financial support measures in response to the coronavirus (COVID-19) outbreak. How do you rate the adequacy of these measures for your household’s financial situation?” They were asked to provide an answer ranging from 0 (very poor) to 10 (very good) in various survey waves between July 2020 and December 2021. The classification into recipients and non-recipients of government support is based on replies to the following question that was included in the December 2020 survey round: “In response to the coronavirus (COVID-19) outbreak, governments are introducing policies to support households, workers and businesses. Please indicate whether your household has received such support in any of the following forms since January 2020”.
Using the CES data, it is also possible to analyse the extent to which providing information about fiscal support packages may influence the public’s perceptions about the adequacy of government support and, in turn, households’ expectations and behaviour.6 To this end, we set up an experiment in which random samples of CES respondents were provided with information about the size and aims (namely, to foster economic recovery) of the fiscal response at both a national and an EU level. We then compared the expectations and subsequent spending behaviour of respondents who received this information with those of a control group who did not receive any information.
One key finding is that providing such information generates a clear improvement in the perceived adequacy of the fiscal support, particularly among households who previously perceived the fiscal interventions to be least adequate. These information effects imply that consumer perceptions are not fully informed, even on a subject that received considerable media attention in the context of the COVID-19 pandemic. They also highlight the benefits of communicating with the public in a simple and direct way. For example, communication can be very effective if it refers to the historically high level of support, makes this support personally relevant to households (e.g. by expressing it on a per capita basis) and explains the intended use (namely, to foster economic recovery).
Who are the collaborating partners in this SGB Financing Initiative?
The COVID Response Alliance for Social Entrepreneurs is a coalition of 86 global leaders who jointly serve close to 100,000 social entrepreneurs and touch the lives of an estimated 1billion people. Initated out of the World Economic Forum’s Schwab Foundation, its mission is to join hands in support of social entrepreneurs everywhere as vital first responders to the pandemic and as pioneers of a green, inclusive economic reality. In January of 2021, its members launched its 2021 Roadmap through which its members collaborate in 10 areas of work – including capital mobilization under whose umbrella this initiative is being undertaken. Read more about the Alliance here.
The Sustainable Development Investment Partnership (SDIP) is a global platform of public, private, and philanthropic institutions with the ambition to scale and accelerate sustainable investments in developing countries and emerging markets, by creating the conditions for capital to flow where in support of the Sustainable Development Goals (SDGs). SDIP network encompasses multilateral banks, development finance institutions, financiers, private investors, asset owners, asset managers and foundations. As a joint initiative of the World Economic Forum and the Organisation for Economic Co-operation and Development (OECD), SDIP’s mission is to address the systemic challenges to finance the SDGs by creating the conditions for capital to flow where it is needed most. Read more about SDIP here.
The Collaborative for Frontier Finance (CFF), has as its mission to build a better financial ecosystem for SGBs and increase the access to appropriate capital for these businesses, works with diverse stakeholders – including local capital providers, institutional investors, development agencies, philanthropic funders, and field builder organizations – to accelerate financing solutions that target SGBs. With a bias to action, CFF works in three ways: by building and empowering networks of these stakeholders, performing “actionable research” and undertaking market-based initiatives to address systemic barriers. Read more about CFF here.
The Global Steering Group for Impact Investment (GSG) is an independent organization promoting sustainable development and advancing education in impact investment. The GSG was established in 2015 as the successor to, and incorporating the work of, the Social Impact Investment Taskforce established under the UK’s presidency of the G8. The GSG’s currently has 33 countries as its members through its National Advisory Boards (NABs), which are local platforms representing all stakeholders needed to redirect significant capital flows towards positive social and environmental impact. The GSG brings together leaders from finance, business, philanthropy, and governments to drive a shift towards impact investment and more equitable economies for all. Read more about the GSG here.
Impact of perceptions on spending behaviour and expectations
A key question is whether changes in perceptions about the adequacy of government support policies could have a causal impact on actual spending decisions of consumers. Our data suggest a positive correlation between such perceptions and purchases of big-ticket items of a discretionary nature, like cars and holiday purchases (Figure 3). The results of the experiment show clearly that an improvement in consumer beliefs about the adequacy of fiscal support measures has a strong and persistent positive causal effect on spending on such goods. We also find some increase in the share of expenditure on non-durable purchases that are more discretionary in nature, like clothing and recreational services, when consumers perceive government support to be more adequate.
Which expectations channels might underpin these changes in consumer behaviour? Our analysis shows that respondents who perceive fiscal interventions to be more adequate also hold more optimistic expectations about their own income prospects, financial situation, and future access to credit. By contrast, our experiment shows that providing information does not influence consumer expectations about future taxes. This is important, as a rise in expected taxes associated with government support measures could attenuate the stimulatory effects of fiscal policy. Finally, the results also demonstrate that this perceptions channel operates beyond any direct effects associated with the actual receipt of government transfers and support. In particular, spending is just as strong for those households who did not receive any support as for those who did. This points to the powerful role of perceptions, as they operate over and above any immediate effects that government transfers can have on spending. Thus, our evidence suggests that fiscal interventions and the related communication can have broader consequences, as they influence the behaviour of households even if they themselves do not actually receive any government support.
Figure 3 Consumption and the perceived adequacy of pandemic-related government support
(x-axis: average perceived adequacy in a range from 0 (very poor) to 10 (very good); y-axis: percentages of respondents who have purchased a holiday (panel a) or a car (panel b) in the past month)
a) Holiday purchases and perceived adequacy
b) Car purchases and perceived adequacy
Notes: Respondents were asked to reply to the question “Governments are taking financial support measures in response to the coronavirus (COVID-19) outbreak. How do you rate the adequacy of these measures for your household’s financial situation?” They were asked to provide an answer ranging from 0 (very poor) to 10 (very good). Respondents are also asked every month about purchases of big-ticket items (e.g. holidays): “Which of the following have you purchased in the past 30 days? Please select all that apply”. The latest observation is for December 2021.
Have you read?
Using survey data from the new ECB CES, we were able to measure and closely track perceptions and expectations of euro area households over a period that was marked by the pandemic shock and large-scale fiscal interventions. By communicating clearly and factually about the magnitude, nature and ultimate goals of fiscal interventions, it is possible to improve the public’s perceptions about the adequacy of such policies. This, in turn, can help stimulate consumer spending and enhance the benefits of fiscal policy in terms of stabilising the economy. Importantly, such perceptions influence the behaviour of households in general and not just those who actually receive support. This points to the broad and important consequences of the public’s perceptions in driving economic outcomes.
Authors’ Note: This column first appeared as a Research Bulletin of the European Central Bank. The author gratefully acknowledges the comments from Alexandra Buist, Michael Ehrmann and Alex Popov. The views expressed here are those of the author and do not necessarily represent the views of the European Central Bank or the Eurosystem.
Blinder, A S and A B Krueger (2004), “What does the public know about economic policy, and how does it know it?”, Brookings Papers on Economic Activity 35(1): 327-397.
Christelis, D, D Georgarakos, T Jappelli and G Kenny (2020), “The Covid-19 crisis and consumption: survey evidence from six EU countries”, ECB Working Paper Series No 2507.
Coibion, O, Y Gorodnichenko and M Weber (2020a), “How Did U.S. Consumers Use Their Stimulus Payments?”, NBER Working Paper No 27693,.
Coibion, O, Y Gorodnichenko and M Weber (2020b), “Does Policy Communication During Covid Work?”, NBER Working Paper No 27384.
ECB (2021), “ECB Consumer Expectations Survey: an overview and first evaluation”, ECB Occasional Paper Series No 287.
Georgarakos, D and G Kenny (2022), “Household Spending and Government Support during the COVID-19 Pandemic: Insights from a new Consumer Survey”, Journal of Monetary Economics, forthcoming.
Haaland, I, C Roth and J Wohlfart (2022), “Designing information provision experiments”, Journal of Economic Literature, forthcoming.
Lane, P (2021), “Expectations surveys: a tool for research and monetary policy”, introductory remarks at the Second joint European Central Bank-Federal Reserve Bank of New York conference.
Sapienza, P and L Zingales (2013), “Economic Experts versus Average Americans”, American Economic Review 103(3): 636-42.
Stantcheva, S (2020), “Understanding economic policies: What do people know and learn?”, Harvard University Working Paper.
1 Coibion et al. (2020a) study how spending in the US responds to direct fiscal transfers to households.
2 A growing body of empirical literature (e.g. Stantcheva 2020, Sapienza and Zingales 2013, and Blinder and Krueger 2004) has started to study households’ knowledge, perceptions and belief formation, in particular in relation to economic policies, and how such beliefs may influence subsequent economic behaviour.
3 See also ECB (2021) and Georgarakos and Kenny (2022) for further details of the CES and its main features.
4 Christelis et al. (2020) discuss the large variation across consumers in terms of their financial concerns arising from the COVID-19 pandemic.
5 Perceptions about the adequacy of government support were measured using the following survey question: “Governments are taking financial support measures in response to the coronavirus (COVID-19) outbreak. How do you rate the adequacy of these measures for your household’s financial situation?” Respondents could provide an answer that ranged between 0 (very poor) and 10 (very good).
6 Coibion et al. (2020b) study more generally the effectiveness of policy communication during the COVID-19 pandemic.
7 In a recent paper, Haaland et al. (2022) provide a review of this experimental approach to analysing economic behaviour.