The focal point of the Budget is the consumption voucher of HKD5,000 per head. Before assessing its usefulness, I have to introduce some economic theories. First, an academic consensus on economic cycle is that fluctuation of consumption expenditure is smaller than that of GDP and investment expenditure. A person might invest tens of thousands of dollars, but money spent on consumer goods and food is limited.

Second, one has to grasp the concept of marginal propensity to consume(MPC). Simply put, it is defined as how many more cents spent(dC) for 1 more dollar earned(dY). Please pay attention to the word “more”, which refers to the notion of addition. In simple calculus, it is formulated as dC/dY. Since Keynes, there has been this theory expressed in a consumption function: C = a + bY（0 < b < 1）. The concept stems from the fact that both income and consumption are flows. The b is MPC, while smaller than 1 means one can only spend what one earns. To measure the efficacy of consumption vouchers, one has to statistically compare the MPC under normal conditions and the MPC with consumption vouchers handed out, and such a simple study has been done innumerous times over the past 100 years.

Christopher Carroll and his associates released a study in Quantitative Economics in 2017 revealing that by and large, MCP hovers around 0.3-0.6; the number concerning non-durable goods is capped at 0.5. Scott Baker and his team issued an estimation in NBER 27097 in September last year that the MPC in the US after cash handouts last year was between 0.25 and 0.4. Moon Jung Kim and his partners estimated in August last year in IZA DP 13567 the effectiveness of handing out consumption vouchers twice after two outbreaks of Wuhan pneumonia in South Korea, finding out that statistically, they did not increase sales much. Feng-Li Lin and his team assessed in June last year in Sustainability the efficacy of consumption vouchers handed out in Taiwan in 2009, concluding that it had no impact at all.

Chang-Tai Hsieh and his associates released a study of Japan’s economy in 2010 in JPE, pointing out that the MPC concerning non-durable goods and services was not statistically outstanding, and semi-durable goods was between 0.1 and 0.2.

It seems that the MPC after handing out consumption vouchers is about 0.5, and not necessarily prominent. If consumption vouchers of HKD5,000 can only generate sales of HKD2,500, it means the HKD18 billion is to create no economic benefit, assuming 7.2 million benefited.

(Law Ka-Chung, columnist. mewe.com/join/lawkachung、facebook.com/kachung.law.988、[email protected])

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