Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/234999 
Year of Publication: 
2020
Series/Report no.: 
Discussion Paper Series No. 676
Publisher: 
University of Heidelberg, Department of Economics, Heidelberg
Abstract: 
We study the household sector's post-tax income and debt position as propagation mechanisms of public into private spending, in postwar U.S. data. In structural VARs, we obtain the consumption "crowding-in puzzle" for surges in public spending and show this consumption response to be accompanied by a persistent increase in disposable income. Endogenously reacting income, however, is insufficient to rationalize conditional comovement of private and public spending: once we hypothetically force (dis)aggregate measures of income to their pre-shock paths, consumption still rises. Corroborating these findings within an external-instruments-identified VAR, which constitutes an adequate laboratory for the simultaneous interplay of financial and macroeconomic time-series, we provide causal evidence of fiscal stimulus prompting households to take on more credit. This favorable debt cycle is paralleled by dropping interest rates, narrowing credit spreads, and in ating collateral prices, e.g., real estate prices, suggesting that softening borrowing constraints support the accumulation of debt and help rationalizing the absence of crowding-out.
Subjects: 
Government spending shock
household income
household indebtedness
credit spread
external instrument
fiscal foresight
JEL: 
E30
E62
G51
H31
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
676.53 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.