Francesco D'Acunto

The Effects of Unconventional Fiscal Policy on Consumption Expenditure

Can the announcement of future higher consumer price inflation stimulate spending at times of fixed nominal interest rates? Francesco D'Acunto, in a recent study (with D. Hoang and M. Weber) uses unique GfK data and a unique policy intervention in Germany to test whether this can occur. This type of policy would be ideal in situations like the one the European Union has been facing since the recent financial crisis, in which central banks cannot decrease nominal rates, which have hit the zero-lower bound, and governments cannot increase spending due to excessive budget deficits. The study shows that households exposed to announcements of higher future consumption taxes do spend more on durable goods and reduce savings, hence allowing for a large amount of liquidity to flow into the economic system, which is crucial to emerging from economic stagnation.

Mr D'Acunto's research agenda spans the areas of corporate finance, household finance and entrepreneurship. While visiting the ifo Institute, he will pursue two projects involving EBDC data. The first project, entitled "Manpower Constraints and Corporate Policy" (with M. Weber and S. Yang), will study the effects of manpower constraints – the lack of supply of high-skilled and specialised workers – on firm-level productivity and decision-making. The EBDC data allow observing directly whether firms face manpower constraints, and the German setting is ideal to study this question because of the large and unexpected influx of specialised workers from the east to the west following German reunification.

The second project, entitled "Inflation Expectations and the Investment-Cash Flow Sensitivity" (with M. Weber and P. Zorn), will study the role of managerial inflation expectations on the excess sensitivity of firm-level investment to cash flows, a fact that characterises firms' investment behaviour around the world. The project will test the hypothesis that higher inflation expectations reduce the expected value of cash in the future, and hence managers might find it optimal to invest in projects with lower net present values today if they have cash available on their balance sheets.

Francesco D'Acunto is an Assistant Professor of Finance at the R. H. Smith School of Business of the University of Maryland. Prior to joining the University of Maryland, he obtained a PhD in Finance from the University of California at Berkeley and an MSc in Economics and Business Law from Universita' di Roma Tor Vergata.