Abstract

We show that households’ investments in government bonds are influenced by their cultural origin. For identification, we analyze the holdings of government bonds by households of different cultural origins within a single bilingual jurisdiction, using the European sovereign debt crisis as a shock to the perception of government debt sustainability. We find that households of different cultural origins invest differently in government bonds after the crisis, reflecting cultural differences in the perception of public debt. These findings cannot be attributed to home bias, economic patriotism, socioeconomic factors, exposure to foreign cultures, banks’ distorted advice, or moral suasion. Our results carry significant policy implications for monetary policy, financial stability, and sovereign debt issuance and management.