Replication package for Household Debt and the Effects of Fiscal Policy

Replication package for "Household Debt and the Effects of Fiscal Policy". International Economic Review, forthcoming. <br><br>Abstract: We examine how the effects of government spending shocks depend on the balance-sheet position of households. Employing U.S. household survey data, we find a large, positive consumption response for households with mortgage debt, smaller response for renters, and an insignificant response for outright homeowners, in response to a positive government spending shock. We consider a model with three types of households and show that it can successfully account for these findings. Liquidity constraints and wealth effects play a crucial role in shock propagation. Our findings suggest the importance of household mortgage debt position in the transmission mechanism of fiscal policy.