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The Redistributive Effects of a Money-Financed Fiscal Stimulus

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  • Chiara Punzo

    (Department of Economics and Finance, Università Cattolica del Sacro Cuore)

  • Lorenza Rossi

    (Department of Economics and Management, University of Pavia)

Abstract

This paper analyzes the redistributive channel of a money fi?nanced fiscal stimulus (MFFS). It shows that the way in which this regime is implemented is crucial to determine its redistributive effects and consequently its effectiveness. In normal times, the most effective regime is a MFFS with no additional intervention by the Central Bank to stabilize the real public debt using in?fation, whereas a MFFS accompanied by real debt stabilization - through the adjustment of seigniorage - is the most effective one in a ZLB scenario. In a TANK model this regime is so effective to avoid the recessionary effects implied by the ZLB. This result does not hold in a RANK model, where the redistributive channel is absent. Remarkably, contrary to the common wisdom a MFFS is followed by a moderate increase of infl?ation, which is only temporarily higher than the target.

Suggested Citation

  • Chiara Punzo & Lorenza Rossi, 2019. "The Redistributive Effects of a Money-Financed Fiscal Stimulus," DEM Working Papers Series 168, University of Pavia, Department of Economics and Management.
    • Handle: RePEc:pav:demwpp:demwp0168
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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