Cambridge-INET Working Papers - Abstracts | The Cambridge-INET Institute

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

WP Number: 1510

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