Household debt and the dynamic effects of income tax changes

Cloyne, J S and Surico, P (2017) Household debt and the dynamic effects of income tax changes. Review of Economic Studies, 84 (1). pp. 45-81. ISSN 0034-6527 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.

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Item Type: Article
Subject Areas: Economics
Additional Information:

© 2016 Oxford University Press

Subjects: D > Debt financing
Date Deposited: 20 Feb 2017 13:38
Last Modified: 10 Feb 2020 19:34
URI: http://lbsresearch.london.edu/id/eprint/793
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