Gambling with the family silver: Household consumption and saving responses to fiscal uncertainty

Arbeitspapier

In the early 2000s, eight Norwegian energy producing municipalities sold up to ten years of future electricity earnings and let two brokers from Terra Securities make investments on their behalf. In the wake of the 2007 credit crash the municipalities lost up to 80 percent of their assets. This paper uses a difference in difference analysis to show that this tightening of the local government budget, and accompanying uncertainty about future economic outcomes, led to a reduction in private consumption of around 2 percent in 2008. I show that the response is driven by households who are the largest recipients of public services - the young and the elderly. The reduction in consumption is a result of households saving more, and not a direct consequence of changes in their disposable income. I also find that households in the affected municipalities rebalance their portfolios to holding a lower share of risky assets. The results are interpreted as households holding back consumption, and reallocating towards safer assets, until uncertainty regarding fiscal outcomes is resolved.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Papers ; No. 913

Classification and Topics

• Classification: Wirtschaft ; Consumer Economics: Empirical Analysis ; Macroeconomics: Consumption; Saving; Wealth ; Studies of Particular Policy Episodes ; Fiscal Policies and Behavior of Economic Agents: Household
• Subject: Fiscal uncertainty ; consumption and saving ; panel data ; natural experiment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Berg, Oddmund
• Event: Veröffentlichung
• (who): Statistics Norway, Research Department
• (where): Oslo
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/210974
• Last update: 10.03.2025, 11:45 AM CET