This paper investigates the role of mortgage refinancing in shaping the estimates of marginal propensity to consume (MPC) and its implications for fiscal policy. Using U.S. household data, we find that MPCs decrease during the year of mortgage refinancing and stabilize afterwards, particularly among households with lower liquid assets, higher debtto-income ratios, and valuable illiquid assets. The empirical evidence suggests that refinancing provides extra liquidity, reducing MPCs. We leverage on a partial equilibrium model to quantitatively assess these effects and to explore the role of home-equity extractions for fiscal policy. Our findings highlight a new dimension for the efficacy of cash transfers: targeted programs that consider higher MPCs of no-refinancers generate savings between 4 and 12% compared to non-targeted programs. These estimates imply approximately $30 billions in potential savings under the CARES Act of March 2020.
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