Fiscal stimuli in the aftermath of COVID-19 were similar in size but generated different economic responses across countries. This paper studies the role of Poor Hand-to-Mouth and Wealthy Hand-to-Mouth agents in shaping fiscal multipliers, comparing a Heterogeneous Agents New Keynesian Model with one and two assets, to properly account for the correct share of liquidity-constrained agents, across 5 different Euro Area economies, including Portugal. The findings suggest that multipliers are greater when the two-asset framework is employed, but only the share of Poor Hand-to-Mouth agents seems significant to explain cross-country heterogeneity in multipliers. These results are robust to the multiplier choice, the shock financing and the monetary policy employed. They also bring important policy implications, as the fact that economies respond differently to government spending shocks because of household heterogeneity suggests that attention should be drawn to households' wealth distribution.
Fiscal Multipliers and Liquidity Constraints: a HANK approach.pdf
