Households' Balance Sheets and the Effect of Fiscal Policy

51 Pages Posted: 11 Oct 2018

See all articles by Javier Andrés

Javier Andrés

University of Valencia - Department of Economics

José Emilio Boscá Mares

University of Valencia - Department of Economic Analysis

Javier Ferri

University of Valencia

Cristina Fuentes-Albero

Board of Governors of the Federal Reserve System

Date Written: October 2, 2018

Abstract

Using households’ balance sheet composition in the Panel Survey of Income Dynamics, we identify six household types. Since 1999, there has been a decline in the share of patient households and an increase in the share of impatient households with negative wealth. Using a six-agent New Keynesian model with search and matching frictions, we explore how changes in households’ shares affect the transmission of government spending shocks. We show that the relative share of households in the left tail of the wealth distribution plays a key role in the aggregate marginal propensity to consume, the magnitude of fiscal multipliers, and the distributional consequences of government spending shocks. While the output and consumption multipliers are positively correlated with the share of households with negative wealth, the size of the employment multiplier is negatively correlated. Moreover, our calibrated model delivers jobless fiscal expansions.

Keywords: panel survey of income dynamics, household balance sheet, fiscal policy, six-agent New Keynesian model, search and matching.

JEL Classification: E21, E62.

Suggested Citation

Andrés, Javier and Boscá Mares, José Emilio and Ferri, Javier and Fuentes-Albero, Cristina, Households' Balance Sheets and the Effect of Fiscal Policy (October 2, 2018). Banco de Espana Working Paper No. 1831, Available at SSRN: https://ssrn.com/abstract=3259019 or http://dx.doi.org/10.2139/ssrn.3259019

Javier Andrés (Contact Author)

University of Valencia - Department of Economics ( email )

E-46022 Valencia, Valencia E-46022
Spain
(34 96) 382 8260 (Phone)
(34 96) 382 8249 (Fax)

José Emilio Boscá Mares

University of Valencia - Department of Economic Analysis ( email )

Campus de los Naranjos
46022 Valencia
Spain

Javier Ferri

University of Valencia ( email )

Avda. de los Naranjos s/n
Valencia, Valencia E-46022
Spain

Cristina Fuentes-Albero

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-973-6971 (Phone)

HOME PAGE: http://https://sites.google.com/site/cristinafuentesalbero/

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