Navigating fiscal fog: household expectations in an uncertain fiscal environment

Guo, J., Tang, L. ORCID: https://orcid.org/0000-0001-7119-3186, Xie, S. and Yin, P. (2025) Navigating fiscal fog: household expectations in an uncertain fiscal environment. Journal of Economic Behavior and Organization. ISSN 2328-7616 (In Press)

Abstract/Summary

Using a novel survey of U.S. households with randomized information treatments, we examine how fiscal policy uncertainty affects household macroeconomic expec- tations and consumption decisions. We find that news about a 3 percentage point increase in government spending growth crowds out household consumption by ap- proximately 1 - 1.5 percentage points. However, this effect is attenuated by 0.27 - 0.6 percentage points when fiscal uncertainty is introduced, primarily due to weakened government spending growth expectations. These average responses mask substan- tial partisan heterogeneity, as respondents from the party opposing the sitting admin- istration show stronger initial crowd-out responses but significantly smaller reactions under uncertainty. A structural model calibrated to our survey data further reveals that fiscal uncertainty reduces the government spending multiplier primarily through weakened investment responses. Our results highlight the importance of fiscal com- munication in managing macroeconomic outcomes in uncertain environments.

Item Type	Article
URI	https://centaur.reading.ac.uk/id/eprint/125479
Refereed	Yes
Divisions	Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
Publisher	Elsevier
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