Household debt and the dynamic effects of income tax changes
Journal
Review of Economic Studies
Subject
Economics
Publishing details
Authors / Editors
Cloyne J;Surico P
Biographies
Publication Year
2017
Abstract
Using a new narrative measure of fiscal policy shocks for the U.K., we show that households with mortgage debt exhibit large and significant consumption responses to tax changes. Homeowners without a mortgage, in contrast, do not adjust their expenditure, with responses not statistically different from zero at all horizons. We compare our findings to the predictions of traditional and newer theories of liquidity constraints, providing a novel interpretation for the aggregate effects of tax changes on the macroeconomy.
Keywords
Fiscal policy; Narrative tax changes; Household debt
Available on ECCH
No
