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The Effects of Fiscal News on Household Expectations and Spending: New Causal Evidence

Author

Listed:
  • Shim, Myungkyu

    (Yonsei University)

  • Kim, Kwang Hwan

    (Yonsei University)

  • Lee, Myunghwan

    (New York University)

  • Choi, Sangyup

    (Yonsei University)

  • Bae, Siye

    (Northwestern University)

  • Coibion, Olivier

    (University of Texas, Austin)

  • Gorodnichenko, Yuriy

    (University of California, Berkeley)

Abstract

We provide experimental evidence on how fiscal news shapes households' expectations and spending behavior. Using a new survey of ~11,000 Korean individuals linked to automatically collected high-frequency spending data, we elicit respondents' fiscal and macroeconomic beliefs and randomly provide them with one of five pieces of information about current public debt levels, fiscal deficits, and the government's plans for deficit reduction. Exogenous increases in expected future public debt raise expected inflation and increase consumer spending. On the other hand, exogenous increases in expected fiscal balance raise expected output growth and have no significant effect on consumer spending.

Suggested Citation

  • Shim, Myungkyu & Kim, Kwang Hwan & Lee, Myunghwan & Choi, Sangyup & Bae, Siye & Coibion, Olivier & Gorodnichenko, Yuriy, 2026. "The Effects of Fiscal News on Household Expectations and Spending: New Causal Evidence," IZA Discussion Papers 18486, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp18486
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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