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Consumption patterns of indebted households: unravelling the relevance of fiscal policy

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  • António Afonso
  • Eduardo de Sá Fortes Leitão Rodrigues

Abstract

We have investigated the influence of fiscal instruments, notably taxes on income and government spending, on household consumption in two different samples and two measures of household debt to provide a comprehensive analysis of the topic. We used dynamic panel models and the GMM approach for 32 advanced and emerging countries from 1995 to 2019. Our findings suggest that fiscal impulses increase private consumption, but when households are highly indebted, patterns change, and increased government spending or reduced taxes, in the presence of high indebtedness, actually discourage household consumption compared to the baseline (lower debt) group.

Suggested Citation

  • António Afonso & Eduardo de Sá Fortes Leitão Rodrigues, 2023. "Consumption patterns of indebted households: unravelling the relevance of fiscal policy," Working Papers REM 2023/0282, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp02822023
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    More about this item

    Keywords

    household consumption; household debt; fiscal policy; panel data.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • 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

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