 Are unconditional lump-sum transfers a good idea?Yunmin Chen, YiLi Chien, Yi Wen and C.C. Yang Economics Letters, 2021, vol. 209, issue C Abstract: The role of unconditional lump-sum transfers in improving social welfare in heterogenous agent models has not been thoroughly understood in the literature. We adopt an analytically tractable Aiyagari-type model to study the distinctive role of unconditional lump-sum transfers in reducing consumption inequality due to ex-post uninsurable income risk under borrowing constraints. Our results show that in the presence of ex-post heterogeneity and in the absence of wealth inequality, unconditional lump-sum transfers are not a desirable tool for reducing consumption inequality—the Ramsey planner opts to rely solely on public debt and a linear labor tax (in the absence of a lump-sum tax) to mitigate income risk without the need for lump-sum transfers, in contrast to the result obtained by Werning (2007), Azzimonti and Yared (2017), and Bhandari et al. (2017) in models with ex-ante heterogeneity. Keywords: Lump-sum transfers; Universal basic income; Ramsey problem; Public liquidity; Incomplete markets; Heterogeneous agents (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:209:y:2021:i:c:s0165176521003657 DOI: 10.1016/j.econlet.2021.110088 Access Statistics for this article Economics Letters is currently edited by Economics Letters Editorial Office More articles in Economics Letters from Elsevier |
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