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Consumption patterns of indebted households: unravelling the relevance of fiscal policy

Author

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  • António Afonso

    (ISEG–School of Economics and Management, Universidade de Lisboa, REM–Research in Economics and Mathematics)

  • Eduardo Sá Fortes Leitão Rodrigues

    (Universidade Federal Rural Do Rio de Janeiro)

Abstract

We have investigated the influence of fiscal instruments, notably taxes and government spending, on household consumption in two different samples and two measures of household debt to provide a comprehensive analysis of the topic. We used dynamic panel models and the Generalised Method of Moments (GMM) approach for 24 and 32 advanced and emerging countries from 1995 to 2020. Our findings show that fiscal impulses increase private consumption. However, when households are highly indebted, the effects are different, and the increase in public spending or the reduced taxes discourages household consumption compared to the baseline (lower debt) group. These results suggest a precautionary effect.

Suggested Citation

  • António Afonso & Eduardo Sá Fortes Leitão Rodrigues, 2025. "Consumption patterns of indebted households: unravelling the relevance of fiscal policy," International Journal of Economic Policy Studies, Springer, vol. 19(1), pages 31-57, February.
    • Handle: RePEc:spr:ijoeps:v:19:y:2025:i:1:d:10.1007_s42495-024-00141-3
    DOI: 10.1007/s42495-024-00141-3
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    More about this item

    Keywords

    Household consumption; Household debt; Fiscal policy; Panel data;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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