Redistribution and the Multiplier
AbstractDoes it matter, for the size of the government spending multiplier, which category of agents bears the brunt of the necessary adjustment in taxes? In an economy with heterogeneous agents and imperfect financial markets, the answer depends on whether or not New Keynesian features, such are price rigidity, are present. If prices are flexible, the tax-financing rule is either neutral or leads to a larger multiplier when taxes are levied on the borrowing constrained agents. If prices are sticky, the multiplier is larger when taxes are levied on the unconstrained agents. We discuss the conditions under which these results hold. Furthermore, we study the real effects of fiscal expansions via pure, revenue-neutral, tax redistributions.
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal IMF Economic Review.
Volume (Year): 59 (2011)
Issue (Month): 4 (November)
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Other versions of this item:
- Monacelli, Tommaso & Perotti, Roberto, 2011. "Redistribution and the Multiplier," CEPR Discussion Papers 8641, C.E.P.R. Discussion Papers.
- Tommaso Monacelli & Roberto Perotti, 2011. "Redistribution and the Multiplier," Working Papers 409, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
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