The Impact of Economic Policy Uncertainty on Household Financial Vulnerability

The uncertainty of economic policy reflects changes in the macroeconomic environment, which can have extensive and profound impacts on the economy and society. However, existing studies have paid little attention to the influence of economic policy uncertainty on household micro-behavior. This paper empirically examines the impact of economic policy uncertainty on household financial vulnerability using household micro-data and an economic policy uncertainty index. The results indicate that increasing economic policy uncertainty significantly heightens household financial vulnerability. Further analysis reveals that heightened economic policy uncertainty leads to a decrease in household income. While it does not have a significant impact on household consumption, it does result in imbalances between household income and expenditure, as well as an increase in household debt burdens, ultimately exacerbating financial vulnerability. Heterogeneity analysis shows that economic policy uncertainty plays a more significant role in promoting financial vulnerability among households with low physical capital, rural areas and central and western regions. This study offers valuable policy insights for relevant departments to mitigate household financial vulnerability and uphold economic policy stability.