Fiscal expenditure, household debt and household consumption

This study develops a dynamic stochastic general equilibrium (DSGE) model with government consumption expenditure, government investment expenditure, and government human capital expenditure, and combines it with China Family Panel Studies (CFPS) unbalanced panel data from 2010 to 2022 to investigate the effects of fiscal expenditures on household consumption from the perspective of household debt. The main findings are as follows. First, government consumption expenditure boosts household consumption in the short run, whereas government investment expenditure and government human capital expenditure crowd out household consumption in the short run. Second, the introduction of household debt amplifies the multiplier effects of three categories of fiscal expenditure on household consumption and exhibits nonlinear moderating characteristics: household debt has an inverted U-shaped moderating effect on the relationship between government consumption expenditure and consumption, and a U-shaped moderating effect on the relationships between government investment expenditure and consumption and between government human capital expenditure and consumption. Third, heterogeneity analysis reveals that the household debt moderating effects on the consumption effects of fiscal expenditures are more pronounced for urban households, homeowners, and high-income households. Fourth, further analysis based on the perspective of households’ marginal propensity to consume (MPC) validates the theoretical results of the DSGE model.