The Consumption Response to Liquidity-Enhancing Transfers: Evidence from Italian Earthquakes
Cambridge Working Papers in Economics
Faculty of Economics
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Acconcia, A., Corsetti, G., & Simonelli, S. (2015). The Consumption Response to Liquidity-Enhancing Transfers: Evidence from Italian Earthquakes. https://doi.org/10.17863/CAM.5769
Exploiting three Italian earthquakes as quasi-experiments, we analyze the response of homeowners' consumption to targeted transfers, financing housing reconstruction over time. Like loans, these transfers mainly affect the liquidity of households' wealth in the short run: we show that they have no effect on consumption over a multi-year horizon. Yet, the access to reconstruction funds has significantly heterogeneous effects on impact: it strongly raises non-durable consumption by households with low liquidity and bank debt (the 'wealthy-hand-to-mouth'); it makes no difference for liquid households. Consistently, in either group, consumption is insensitive to transfer funds that accrue directly to firms.
Consumption, Liquidity, Mortgage, Quasi-experiment, Public Transfers.
This record's DOI: https://doi.org/10.17863/CAM.5769
This record's URL: https://www.repository.cam.ac.uk/handle/1810/255312
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