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Household Beliefs about Fiscal Dominance

Author

Listed:
  • Andrade, Philippe
  • Gautier, Erwan
  • Mengus, Eric
  • Moench, Emanuel
  • Schmidt, Tobias

Abstract

Using a novel survey design, we provide direct micro-level evidence on whether households associate public debt with inflation in a manner consistent with models of fiscal dominance. Individuals who consider that fiscal resources are stretched tend to associate larger debt-to-GDP with higher inflation. By contrast, individuals who think there is more fiscal space do not make that connection. This result is robust to controlling for pessimism or expansionary effects of fiscal policy. In addition, households associate stretched fiscal resources with inflation because of negative supply developments rather than with the central bank keeping interest rates low to help the fiscal authority.

Suggested Citation

  • Andrade, Philippe & Gautier, Erwan & Mengus, Eric & Moench, Emanuel & Schmidt, Tobias, 2025. "Household Beliefs about Fiscal Dominance," CEPR Discussion Papers 19862, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:19862
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    Cited by:

    1. Cars Hommes & Isabelle Salle & Julien Pinter, 2026. "Fiscal Beliefs & Narratives," Tinbergen Institute Discussion Papers 26-031/VI, Tinbergen Institute.
    2. Jing Cynthia Wu & Shihan Xie & Yinxi Xie & Ji Zhang, 2025. "Fiscal Policy: Financing and Indebtedness," NBER Working Papers 34551, National Bureau of Economic Research, Inc.
    3. Shim, Myungkyu & Kim, Kwang Hwan & Lee, Myunghwan Andrew & Choi, Sangyup & Bae, Siye & Coibion, Olivier & Gorodnichenko, Yuriy, 2026. "The Effects of Fiscal News on Household Expectations and Spending: New Causal Evidence," CEPR Discussion Papers 21315, Centre for Economic Policy Research.
    4. repec:ecb:ecbdps:202426 is not listed on IDEAS
    5. Takuji Fueki & Masashi Hino & Mitsuru Katagiri & Munechika Katayama & Taisuke Nakata, 2026. "The Perceived Government Budget Constraint," CARF F-Series CARF-F-625, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    6. McClung, Nigel, 2025. "Why should fiscal imbalances concern policymakers at independent inflation-targeting central banks?," BoF Economics Review 4/2025, Bank of Finland.
    7. Brandao-Marques, Luis & Casiraghi, Marco & Gelos, Gaston & Harrison, Olamide & Kamber, Gunes, 2024. "Is high debt Constraining monetary policy? evidence from inflation expectations," Journal of International Money and Finance, Elsevier, vol. 149(C).

    More about this item

    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • 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
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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