Fiscal Policy and Households' Inflation Expectations: Evidence from a Randomized Control Trial

Olivier Coibion, Yuriy Gorodnichenko and Michael Weber

No 14114, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Rising government debt levels around the world are raising the specter that authorities might seek to inflate away the debt. In theoretical settings where fiscal policy "dominates" monetary policy, higher debt without offsetting changes in primary surpluses should lead households to anticipate this higher inflation. Are household inflation expectations sensitive to fiscal considerations in practice? We field a large randomized control trial on U.S. households to address this question by providing randomly chosen subsets of households with information treatments about the fiscal outlook and then observing how they revise their expectations about future inflation as well as taxes and government spending. We find that information about the current debt or deficit levels has little impact on inflation expectations but that news about future debt leads them to anticipate higher inflation, both in the short run and long run. News about rising debt also induces households to anticipate rising spending and a higher rate of interest for government debt.

Keywords: expectations management; inflation expectations; surveys (search for similar items in EconPapers)
JEL-codes: C83 D84 E31 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2021-02
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Downloads: (external link)
https://docs.iza.org/dp14114.pdf (application/pdf)

Related works:
Working Paper: Fiscal Policy and Households' Inflation Expectations: Evidence from a Randomized Control Trial (2021)
Working Paper: Fiscal Policy and Households’ Inflation Expectations: Evidence from a Randomized Control Trial (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp14114

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().