Fiscal Announcements and Households’ Beliefs: Evidence from the Euro Area

This paper studies the effects of fiscal policy announcements on household expecta-tions. We document announcements of price-related expansionary fiscal measures in response to the cost-of-living crisis in the four largest euro area economies and exploit the exogenous timing of fiscal actions relative to household survey participation to estimate their causal effects. Following fiscal announcements, households revise their beliefs: inflation perceptions rise, and unemployment perceptions fall. The latter effect persists into short-run unemployment expectations, while inflation expectations remain unchanged, suggesting households perceived inflationary pressures as temporary. These results suggest a significant signaling channel of fiscal policy, as fiscal announcements reveal information about the underlying economic conditions and the government’s commitment to stabilization. We rationalize these findings through a general equilibrium New Keynesian model extended with information frictions and an inflation-stabilizing role for fiscal policy. The model isolates the informational content of fiscal policy and shows that belief revisions are consistent with demand-driven dynamics.