Does Redistribution Increase Output? The Centrality of Labor Supply

Kartik Athreya, Andrew Owens and Felipe Schwartzman

No 14-4, Working Paper from Federal Reserve Bank of Richmond

Abstract: The aftermath of the recent recession has seen numerous calls to use transfers to poorer households as a means to enhance aggregate activity. We show that the key to understanding the direction and size of such interventions lies in labor supply decisions. We study the aggregate impact of short-term redistributive economic policy in a standard incomplete-markets model. We characterize analytically conditions under which redistribution leads to an increase or decrease in effective hours worked, and hence, output. We then show that under the parameterization that matches the wealth distribution in the U.S. economy (Castaneda et al., 2003), wealth redistribution leads to a boom in consumption, but not in output.

Keywords: Multipliers; Redistribution; Labor supply; Idiosyncratic Risk (search for similar items in EconPapers)
JEL-codes: D90 E21 E25 E63 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2014-02-28
New Economics Papers: this item is included in nep-dge, nep-lab, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Journal Article: Does redistribution increase output? The centrality of labor supply (2017)
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