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Faculty of Economics

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Acconcia, A., Corsetti, G. and Simonelli, S.

The Consumption Response to Liquidity-Enhancing Transfers: Evidence from Italian Earthquakes

CWPE1553

Abstract: Exploiting three Italian earthquakes as quasi-experiments, we analyze the response of homeowners' consumption to transfers targeted to finance housing reconstruction over time-which, like loans, mainly affect the liquidity of households' wealth in the short run. We show that transfers that have no effect on consumption over a multi-year horizon, can have signficant heterogeneous effects on impact. The access to reconstruction funds strongly raises non-durable consumption by households with low liquidity and bank debt, but makes no difference for liquid households, or when cash accrues directly to firms-in line with recent analyses of the consumption dynamics of 'wealthy hand-to-mouth.'

Keywords: Consumption, Liquidity, Mortgage, Quasi-experiment, Public Transfers

JEL Codes: E21 E62

Author links: Giancarlo Corsetti  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1553.pdf

Open Access Link: https://doi.org/10.17863/CAM.5769