Household Debt and the Dynamic Effects of Income Tax Changes

James Cloyne and Paolo Surico

The Review of Economic Studies, 2017, vol. 84, issue 1, 45-81

Abstract: Using a new narrative measure of fiscal policy shocks for the U.K., we show that households with mortgage debt exhibit large and significant consumption responses to tax changes. Homeowners without a mortgage, in contrast, do not adjust their expenditure, with responses not statistically different from zero at all horizons. We compare our findings to the predictions of traditional and newer theories of liquidity constraints, providing a novel interpretation for the aggregate effects of tax changes on the macroeconomy.

Keywords: Fiscal policy; narrative tax changes; household debt (search for similar items in EconPapers)
JEL-codes: E21 E32 E62 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (46)

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Related works:
Working Paper: Household debt and the dynamic effects of income tax changes (2014)
Working Paper: Household Debt and the Dynamic Effects of Income Tax Changes (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:84:y:2017:i:1:p:45-81.

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