Fiscal Dominance and Asset Price Redistribution

Hector Villarreal

No 30, Working Paper Series of the School of Government and Public Transformation from School of Governement and Public Transformation

Abstract: This paper studies the distributional consequences of fiscal dominance through asset prices. When public debt constrains monetary policy, interest rates may decline as debt increases. Lower discount rates raise asset valuations, generating capital gains for asset holders. In a simple framework combining public debt dynamics, fiscal reaction functions, and a debt-sensitive interest rate rule, we derive a formal condition under which fiscal dominance generates redistribution toward asset-owning households through the asset price channel, and show that the wealth share of asset holders is increasing in public debt.

Keywords: fiscal dominance; public debt; interest rates; asset prices; wealth inequality; monetary policy; fiscal policy; redistribution (search for similar items in EconPapers)
JEL-codes: D31 E52 E62 G12 H63 (search for similar items in EconPapers)
Pages: 5 pages
Date: 2026-04
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Persistent link: https://EconPapers.repec.org/RePEc:gnt:wpaper:30

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