HOUSEHOLD DEBT AND THE EFFECTS OF FISCAL POLICY

Sami Alpanda, Melissa Hyunji Song and Sarah Zubairy

International Economic Review, 2024, vol. 65, issue 4, 1877-1909

Abstract: We examine how the effects of government spending shocks depend on the balance sheet position of households. Employing U.S. household survey data, we find a large, positive consumption response for households with mortgage debt, smaller response for renters, and an insignificant response for outright homeowners, in response to a positive government spending shock. We consider a model with three types of households and show that it can successfully account for these findings. Liquidity constraints and wealth effects play a crucial role in shock propagation. Our findings suggest the importance of household mortgage debt position in the transmission mechanism of fiscal policy.

Date: 2024
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https://doi.org/10.1111/iere.12702

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Working Paper: Household Debt and the Effects of Fiscal Policy (2021)
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