 Public debt, iMPCs & fiscal policy transmissionStefano Grancini Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics Abstract: In this paper, I examine the relationship between public debt and the effectiveness of fiscal policy, presenting evidence of an inverse relationship between government debt and fiscal multipliers. To explain the results, I develop and calibrate a HANK model tailored to the U.S. economy. The model reveals that higher public debt diminishes fiscal multipliers by making households less constrained; with greater debt serving as a liquidity self-insurance tool, agents exhibit a weaker labor response to fiscal shocks. Theoretically, I show that the level of government debt influences fiscal multipliers through its impact on intertemporal marginal propensities to consume (iMPCs). The primary factor driving changes in iMPCs is the heterogeneous response of agents to the fiscal shock across the aggregate wealth distribution. By holding more liquidity, households can better self-insure against potential future shocks, thereby affecting the overall effectiveness of fiscal policy. Keywords: Fiscal multipliers; Public debt; HANK; Government spending; iMPCs (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:unl:unlfep:wp664 Access Statistics for this paper More papers in Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics Contact information at EDIRC. |
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