Household Debt and the Dynamic Effects of Income Tax Changes

From James Cloyne and Paolo Surico:

This paper investigates a new channel in the transmission of fiscal policy: household debt. Using a long span of expenditure survey data and a new narrative measure of exogenous income tax changes for the UK, mortgagors exhibit large and persistent consumption responses to tax changes. Home owners without a mortgage, in contrast, do not appear to react, with responses not statistically different from zero at all horizons. Social renters increase their consumption, but by less than mortgagors. Households with non-mortgage debt also tend to adjust their expenditure by more than non-borrowers. Splitting the sample by age and education yields only limited evidence of heterogeneity as the distributions of these demographics overlap across housing tenures. Our findings highlight the role of household debt in evaluating the effectiveness of fiscal policy both in the aggregate and across different groups in society.

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About ozidar

Graduate student at UC Berkeley, studying public finance & labor economics. https://sites.google.com/site/omzidar/
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One Response to Household Debt and the Dynamic Effects of Income Tax Changes

  1. Pingback: Links for 07-12-2013 | Symposium Magazine

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