Government Investment Stimulus and Household Balance Sheet Externalities

Forthcoming, The Journal of Financial and Quantitative Analysis

84 Pages Posted: 17 Nov 2020 Last revised: 26 Dec 2023

Date Written: November 15, 2022

Abstract

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). Forthcoming, The Journal of Financial and Quantitative Analysis, Available at SSRN: https://ssrn.com/abstract=3701249 or http://dx.doi.org/10.2139/ssrn.3701249

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

HOME PAGE: http://www.abhishek-bhardwaj.com

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
200
Abstract Views
873
Rank
283,061
PlumX Metrics