Rising government debt levels around the world are raising the specter that authorities might seek to inflate away the debt. In theoretical settings where fiscal policy “dominates” monetary policy, higher debt without offsetting changes in primary surpluses should lead households to anticipate this higher inflation. Are household inflation expectations sensitive to fiscal considerations in practice? We field a large randomized control trial on U.S. households to address this question by providing randomly chosen subsets of households with information treatments about the fiscal outlook and then observing how they revise their expectations about future inflation as well as taxes and government spending. We find that information about the current debt or deficit levels has little impact on inflation expectations but that news about future debt leads them to anticipate higher inflation, both in the short run and long run. News about rising debt also induces households to anticipate rising spending and a higher rate of interest for government debt.

More on this topic

BFI Working Paper·Apr 3, 2024

Bridging Theory and Empirical Research in Accounting

Matthias Breuer, Eva Labro, Haresh Sapra and Anastasia A. Zakolyukina
Topics: Fiscal Studies
BFI Working Paper·Aug 15, 2023

Sovereign Debt and Economic Growth When Government is Myopic and Self-interested

Viral V. Acharya, Raghuram Rajan and Jack Shim
Topics: Financial Markets, Fiscal Studies
BFI Working Paper·Jun 20, 2023

The Value of Student Debt Relief and the Role of Administrative Barriers: Evidence from the Teacher Loan Forgiveness Program

Brian Jacob, Damon Jones and Benjamin J. Keys
Topics: Fiscal Studies, Higher Education & Workforce Training