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The Consumption Response to Liquidity-Enhancing Transfers: Evidence from Italian Earthquakes

Antonio Acconcia (), Giancarlo Corsetti () and Saverio Simonelli

No 10698, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Exploiting three Italian earthquakes as quasi-experiments, we analyze the response of homeowners' consumption to targeted transfers, financing housing reconstruction over time. Like loans, these transfers mainly affect the liquidity of households' wealth in the short run: we show that they have no effect on consumption over a multi-year horizon. Yet, the access to reconstruction funds has significantly heterogeneous effects on impact: it strongly raises non-durable consumption by households with low liquidity and bank debt (the `wealthy-hand-to-mouth'); it makes no difference for liquid households. Consistently, in either group, consumption is insensitive to transfer funds that accrue directly to firms.

Keywords: Consumption; Liquidity; Mortgage; Public Transfers; Quasi-experiments (search for similar items in EconPapers)
JEL-codes: E21 E61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2015-07
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