Review of Economic Studies Vol. 84 No. 1 2017
Household Debt and the Dynamic Effects of Income Tax Changes
open access
Abstract
Using a new narrative measure of fiscal policy shocks for the U.K., we show that households with mortgage debt exhibit large and significant consumption responses to tax changes. Homeowners without a mortgage, in contrast, do not adjust their expenditure, with responses not statistically different from zero at all horizons. We compare our findings to the predictions of traditional and newer theories of liquidity constraints, providing a novel interpretation for the aggregate effects of tax changes on the macroeconomy.
- DOI
- 10.1093/restud/rdw021
- Volume
- 84
- Issue
- 1
- Pages
- 45-81
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref