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Household Debt And The Effects Of Fiscal Policy

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  • Sami Alpanda
  • Melissa Hyunji Song
  • Sarah Zubairy

Abstract

We examine how the effects of government spending shocks depend on the balance sheet position of households. Employing U.S. household survey data, we find a large, positive consumption response for households with mortgage debt, smaller response for renters, and an insignificant response for outright homeowners, in response to a positive government spending shock. We consider a model with three types of households and show that it can successfully account for these findings. Liquidity constraints and wealth effects play a crucial role in shock propagation. Our findings suggest the importance of household mortgage debt position in the transmission mechanism of fiscal policy.

Suggested Citation

  • Sami Alpanda & Melissa Hyunji Song & Sarah Zubairy, 2024. "Household Debt And The Effects Of Fiscal Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(4), pages 1877-1909, November.
    • Handle: RePEc:wly:iecrev:v:65:y:2024:i:4:p:1877-1909
    DOI: 10.1111/iere.12702
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