Being and Consciousness: Fiscal Attitudes according to HANK

Christian Bayer (), Alexander Kriwoluzky (), Gernot J. Müller () and Fabian Seyrich ()
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Christian Bayer: University of Bonn, CEPR, CESifo, & IZA
Alexander Kriwoluzky: Freie Universität Berlin & DIW Berlin
Gernot J. Müller: University of Tübingen, CEPR, & CESifo
Fabian Seyrich: Frankfurt School of Finance & Management & DIW Berlin

No 368, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

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: 49
Date: 2025-07
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:368

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