Liquidity Constraint Tightness and Consumer Responses to Fiscal Stimulus Policy∗

Consumption theory predicts that ex ante variation in marginal interest rates across consumers, capturing heterogeneity in the tightness of liquidity constraints, predicts spending responses to stimulus policies. We test this hypothesis directly us-ing administrative records of all individual asset holdings and individual-level loan and deposit accounts in combination with a Danish fiscal stimulus policy transform-ing illiquid pension wealth into liquid wealth. The data reveal substantial variation in liquidity constraint tightness across consumers, and this predicts the propensity to spend. We show that the heterogeneity in interest rates across consumers cannot be explained by short-lived shocks appearing within the duration of a typical busi-ness cycle but that it is consistent with persistent heterogeneity, for example in the degree of impatience