Liquidity Constraint Tightness and Consumer Responses to Fiscal Stimulus Policy

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The marginal interest rate is the price at which a household can access additional liquidity. Consumption theory posits that variation in marginal interest rates across consumers predicts differences in the propensity to spend a stimulus payment. This hypothesis is tested in the context of a Danish 2009 stimulus policy that transformed illiquid pension wealth into liquid wealth. Marginal interest rates are constructed from administrative records with account level information and merged with survey data measuring the spending response to the stimulus policy. The data reveal substantial variation in marginal interest rates across consumers, and these interest rates predict spending responses.

Original languageEnglish
JournalAmerican Economic Journal: Economic Policy
Issue number1
Pages (from-to)351-379
Publication statusPublished - Feb 2019

ID: 216910198