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Government Investment Stimulus and Household Balance Sheet Externalities

Published online by Cambridge University Press:  30 January 2025

Abhishek Bhardwaj  and
Saptarshi Mukherjee Open the ORCID record for Saptarshi Mukherjee [Opens in a new window]
Abhishek Bhardwaj
Affiliation:
Tulane University Freeman School of Business abhardwaj@tulane.edu
Saptarshi Mukherjee*
Affiliation:
Northeastern University D’Amore-McKim School of Business
*
saptarshimukherjee@northeastern.edu (corresponding author)
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Abstract

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We document spillover effects of government policies promoting capital investment on household financial choices and wealth accumulation. Using individual-level data on employment outcomes and household balance sheets, we find that increase in accelerated depreciation limits increases the layoff probability of routine workers and reduces their stock share of liquid wealth relative to non-routine workers. Background risk due to the policy is mitigated when workers have access to generous unemployment insurance benefits. Finally, we show that such portfolio rebalancing adversely impacts investment returns and the wealth accumulation of routine workers.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 43
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank Viral V. Acharya, Rajesh Aggarwal, Holger M. Mueller, Arpit Gupta, Simone Lenzu, Joseba Martinez, Tiantian Gu, Weiling Liu, Kunchen Zhang, and seminar participants at the 2022 EFA Annual Meeting, 2021 SFA Meeting, and Northeastern University for helpful comments. We would also like to thank Ran Duchin (the editor) and two anonymous referees for numerous helpful comments which significantly improved the paper. All errors are our own.

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