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Redistribution and the Multiplier

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  • Tommaso Monacelli
  • Roberto Perotti

Abstract

During a fiscal stimulus, does it matter, for the size of the government spending multiplier, which category of agents bears the brunt of the current and/or future 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 quasi-neutral. If prices are sticky, who bears the brunt of the adjustment, whether financially constrained borrowers as opposed to unconstrained savers, does matter. The differential effect on the multiplier, however, depends crucially on (i) the degree of persistence of the fiscal expansion, and (ii) on whether the expansion is balanced-budget as opposed to debt-financed.

Suggested Citation

  • Tommaso Monacelli & Roberto Perotti, 2011. "Redistribution and the Multiplier," Working Papers 409, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  • Handle: RePEc:igi:igierp:409
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    References listed on IDEAS

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    1. Tommaso Monacelli & Roberto Perotti, 2011. "Tax Cuts, Redistribution, and Borrowing Constraints," Working Papers 408, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    2. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
    3. Bilbiie, Florin O., 2008. "Limited asset markets participation, monetary policy and (inverted) aggregate demand logic," Journal of Economic Theory, Elsevier, vol. 140(1), pages 162-196, May.
    4. Becker, Robert A. & Foias, Ciprian, 1987. "A characterization of Ramsey equilibrium," Journal of Economic Theory, Elsevier, vol. 41(1), pages 173-184, February.
    5. Jeffrey R. Campbell & Zvi Hercowitz, 2005. "The Role of Collateralized Household Debt in Macroeconomic Stabilization," NBER Working Papers 11330, National Bureau of Economic Research, Inc.
    6. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
    7. Robert A. Becker, 1980. "On the Long-Run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households," The Quarterly Journal of Economics, Oxford University Press, vol. 95(2), pages 375-382.
    8. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
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    Cited by:

    1. repec:eee:eecrev:v:100:y:2017:i:c:p:525-543 is not listed on IDEAS
    2. Ermelinda Lopes & Ermelinda Lopes Silva, 2016. "Tieboutian market Structure and Collective Decision Process Within a Global Competition Policy," EcoMod2016 9292, EcoMod.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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