Redistribution and the Multiplier

Tommaso Monacelli and Roberto Perotti

No 409, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

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.

Date: 2011
New Economics Papers: this item is included in nep-cba, nep-mac, nep-pbe and nep-pub
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Journal Article: Redistribution and the Multiplier (2011)
Working Paper: Redistribution and the Multiplier (2011)
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