FSS-DECO seminar: Navigating Fiscal Fog: Household Expectations in an Uncertain Fiscal Environment
Speaker: Prof. Junjie GUO, Associate Professor, School of Finance, Central University of Finance and Economics
Date: 20 November 2024 (Wednesday)
Time: 14:00-15:15
Venue: E21A-G035
Language: English
Abstract: Using a novel survey of U.S. households, we study how fiscal policy uncertainty affects household macroeconomic expectations and consumption-saving decisions. We employ randomized information treatments to induce exogenous changes in perceived fiscal policy uncertainty. The results show that fiscal uncertainty dampens the crowding-out effect on household spending by lowering expectations of interest rates. Additionally, the findings support Ricardian equivalence, as households anticipating higher fiscal spending growth expect increased future taxes. Employing a quantitative model calibrated with survey data, we show that fiscal uncertainty significantly reduces the government spending multiplier, primarily by dampening investment responses. These insights highlight the importance of effective fiscal policy communication in uncertain environments.
