COVID-19 and Consumption
Title: COVID-19 and Consumption
Abstract: This paper studies how and why consumer behavior changes during the COVID-19 pandemic. Using panel data from a representative survey of German households linked with information on local infection rates, the results show that households reduce consumption expenditures and plan to cut future spending when they are locally exposed to higher COVID-19 cases. The effect varies systematically across socio-demographic groups, consistent with beliefs and risk perceptions about COVID-19 driving consumption responses. Further, expecting lower income is associated with lower expenditures and a stronger intention to cut future spending, suggesting that a precautionary saving motive matters. Last, households who are pessimistic about their future income and the trajectory of the pandemic plan to restrict their post-pandemic spending, in the long-term.