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Fiscal Policy: Financing and Indebtedness

Author

Listed:
  • Jing Cynthia Wu
  • Shihan Xie
  • Yinxi Xie
  • Ji Zhang

Abstract

We conduct a large-scale information randomized controlled trial to study fiscal policy impacts. Surveying approximately 9,000 households across five eurozone countries with varying debt-to-GDP ratios enables a clean cross-country comparison. The key finding is that the fiscal multiplier depends jointly on the financing method and the country’s debt burden: multipliers are smaller in high-debt countries when debt-financed but remain similar across countries when tax-financed. Finally, we develop a New Keynesian model featuring fiscal discipline, which reproduces the empirical patterns observed in the survey and highlights their underlying economic mechanisms.

Suggested Citation

  • Jing Cynthia Wu & Shihan Xie & Yinxi Xie & Ji Zhang, 2025. "Fiscal Policy: Financing and Indebtedness," CESifo Working Paper Series 12321, CESifo.
    • Handle: RePEc:ces:ceswps:_12321
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    File URL: https://www.ifo.de/DocDL/cesifo1_wp12321.pdf
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    Keywords

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    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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