Consumer Responses to Fiscal Stimulus Policy and Households' Cost of Liquidity

40 Pages Posted: 2 Oct 2012

See all articles by Claus Thustrup Kreiner

Claus Thustrup Kreiner

University of Copenhagen - Department of Economics

David Dreyer Lassen

University of Copenhagen

Søren Leth‐Petersen

University of Copenhagen - Department of Economics

Date Written: September 2012

Abstract

Consumption theory predicts that the cost of liquidity determines spending responses to a stimulus. We test this hypothesis directly using administrative records of individual-level loan and deposit accounts in combination with a Danish fiscal stimulus reform transforming illiquid pension wealth into liquid wealth. The data reveal substantial variation in the cost of liquidity across households, and this cost robustly predicts the propensity to spend. We find that the heterogeneity across households cannot be explained by short-lived shocks appearing within the duration of a typical business cycle but show that it is consistent with liquidity constraints being self-imposed by impatient types.

Keywords: consumption behavior, fiscal policy, liquidity constraints

JEL Classification: H31

Suggested Citation

Kreiner, Claus Thustrup and Lassen, David Dreyer and Leth-Petersen, Soren, Consumer Responses to Fiscal Stimulus Policy and Households' Cost of Liquidity (September 2012). CEPR Discussion Paper No. DP9161. Available at SSRN: https://ssrn.com/abstract=2155531

Claus Thustrup Kreiner (Contact Author)

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

David Dreyer Lassen

University of Copenhagen ( email )

Soren Leth-Petersen

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

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