Government Investment Stimulus and Household Balance Sheet Externalities

56 Pages Posted: 17 Nov 2020 Last revised: 15 Nov 2022

Date Written: November 15, 2022


We document spillover effects of government policies promoting capital investment on household financial choices and wealth accumulation. Using individual-level data on employment outcomes and household balance sheets, we find that increase in accelerated depreciation limits increases the layoff probability of routine workers and reduces their stock share of liquid wealth relative to non-routine workers. Background risk due to the policy is mitigated when workers have access to generous unemployment insurance benefits. Finally, we show that such portfolio rebalancing adversely impacts investment returns and the wealth accumulation of routine workers.

Keywords: Government stimulus, investment, stock market participation, background risk, portfolio choice

JEL Classification: D14, G11, G18, G51

Suggested Citation

Mukherjee, Saptarshi and Bhardwaj, Abhishek, Government Investment Stimulus and Household Balance Sheet Externalities (November 15, 2022). Available at SSRN: or

Saptarshi Mukherjee (Contact Author)

Northeastern University ( email )

360 Huntington Ave
409C Hayden Hall
Boston, MA Massachusetts 02115
United States
02115 (Fax)

Abhishek Bhardwaj

Tulane University ( email )

6823 St Charles Ave
New Orleans, LA 70118
United States


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