Being and Consciousness: Fiscal Attitudes according to HANK

Christian Bayer, Alexander Kriwoluzky, Gernot Müller and Fabian Seyrich

No 2132, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Attitudes toward fiscal policy differ: fiscal conservatism and fiscal liberalism vary in their willingness to tolerate budget deficits. We challenge the view that such attitudes reflect national preferences. Instead, we offer an economic explanation based on a two-country Heterogeneous Agent New Keynesian model, bringing its implicit political economy dimension to the forefront. We compute the welfare implications of alternative fiscal policies at the household level to assess the conditions under which a policy commands majority support. Whether the majority supports fiscal conservatism or liberalism depends on a country’s debt level, its wealth distribution, and the nature of the economic shock.

Keywords: HANK; two-country model; political economy; government debt; fiscal policy; household heterogeneity (search for similar items in EconPapers)
JEL-codes: E32 F45 H63 (search for similar items in EconPapers)
Pages: 48 p.
Date: 2025
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Related works:
Working Paper: Being and Consciousness: Fiscal Attitudes according to HANK (2025)
Working Paper: Being and Consciousness: Fiscal Attitudes according to HANK (2025)
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