Discussion Paper Details

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

Author(s): Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli

Publication Date: July 2015

Keyword(s): Consumption, Liquidity, Mortgage, Public Transfers and Quasi-experiments

Programme Area(s): Monetary Economics and Fluctuations

Abstract: 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.

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Bibliographic Reference

Acconcia, A, Corsetti, G and Simonelli, S. 2015. 'The Consumption Response to Liquidity-Enhancing Transfers: Evidence from Italian Earthquakes'. London, Centre for Economic Policy Research.