When people hear the government has more debt, they spend more — not less

Researchers gave 11,000 Korean households randomized news about public debt and fiscal deficits, then tracked their actual spending. When people heard debt was rising, they expected higher inflation and spent more. When they heard the government was fixing the deficit, they expected stronger growth but didn't change spending. This means household spending doesn't respond to fiscal news the way economists predicted.

For decades, economists built models assuming people cut spending when they learn the government is drowning in debt. This paper shows the opposite happens: debt news makes people spend faster, probably because they expect inflation to eat their savings. That breaks the transmission mechanism that central banks and governments rely on to slow down the economy. If fiscal warnings don't scare people into saving, the usual tools for managing demand become weaker.