Income effect in private contribution of public goods: economic impact payment in the Covid-19 pandemic

This paper studies the public good nature of Covid-19 mitigation effort, and illustrates the relationship between income level and the voluntary contribution to the Covid-19 mitigation effort. I build a theoretical model to show that there exists a threshold income level. All individuals whose income is lower than the threshold only contribute mitigation effort at mandatory level required by the government policies, and free ride the extra social aggregate mitigation effort contributed by those whose income is above the threshold. In the empirical analysis, I employ an exogenous income shock in U.S., the economic impact payment (EIP), as a quasi natural experiment, and use human mobility as an outcome indicator of Covid-19 mitigation effort. The empirical results are highly consistent with the theory, indicating the EIP significantly raises the median home dwell time by 3%--5%. I also find that the households with income lower than $20,000 are bounded by the mandatory level, so receiving the EIP does not affect their median home dwell time.