Fiscal Policy with Heterogeneous Agents and Incomplete Markets

Jonathan Heathcote

The Review of Economic Studies, 2005, vol. 72, issue 1, 161-188

Abstract: I undertake a quantitative investigation into the short run effects of changes in the timing of proportional income taxes for model economies in which heterogeneous households face a borrowing constraint. Temporary tax changes are found to have large real effects. In the benchmark model, a temporary tax cut increases aggregate consumption on impact by around 29 cents for every dollar of tax revenue lost. Comparing the benchmark incomplete-markets model to a complete-markets economy, income tax cuts provide a larger boost to consumption and a smaller investment stimulus when asset markets are incomplete. Copyright 2005, Wiley-Blackwell.

Date: 2005
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Related works:
Working Paper: Fiscal Policy with Heterogeneous Agents and Incomplete Markets (2003)
Working Paper: Fiscal Policy with Heterogeneous Agents and Incomplete Markets (2001)
Working Paper: Fiscal Policy with Heterogeneous Agents and Incomplete Markets (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:72:y:2005:i:1:p:161-188

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