Government spending effectiveness depends critically on how it is financed. Using state-dependent SVAR models and local projections on post-war US data, authors show that fiscal expansions financed with short-term debt generate significantly larger output multipliers than those financed with long-term debt. This difference mainly stems from private consumption responses: short-term financing crowds in consumption while long term financing does not. To rationalize this finding, authors construct an incomplete markets model in which households invest in short-term and long-term assets. […]