EconPapers    
Economics at your fingertips  
 

The Heterogeneous Effects of Government Spending: It’s All About Taxes

Axelle Ferriere and Gaston Navarro

The Review of Economic Studies, 2025, vol. 92, issue 2, 1061-1125

Abstract: Historically, large changes in U.S. government spending induced fiscal efforts that were not all alike, with some using more progressive taxes than others. We develop a heterogeneous-agent New Keynesian model to analyse how the distribution of taxes across households shapes spending multipliers. The model yields empirically realistic distributions in marginal propensities to consume and labour elasticities, which result in lower responsiveness to tax changes for higher-income earners. In turn, multipliers are larger when spending is financed with higher tax progressivity—that is, when the tax burden falls more heavily on higher-income earners. This result is historically material. We estimate that, on average, tax rates increased more for top-income than for bottom-income earners after a spending shock. Thus, the typical U.S. spending shock was financed with higher tax progressivity. We further exploit the historical variation in the financing of spending to estimate progressivity-dependent multipliers, which we find consistent with the model.

Keywords: Fiscal stimulus; Government spending; Transfers; Heterogeneous agents (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/restud/rdae032 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The Heterogeneous Effects of Government Spending: It’s All About Taxes (2024) Downloads
Working Paper: The Heterogeneous Effects of Government Spending: It’s All About Taxes (2024) Downloads
Working Paper: The Heterogeneous Effects of Government Spending: It’s All About Taxes (2018) Downloads
Working Paper: The Heterogeneous Effects of Government Spending: It's All About Taxes (2016) Downloads
Working Paper: The Heterogeneous Effects of Government Spending: It's All About Taxes (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:92:y:2025:i:2:p:1061-1125.

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2025-04-08
Handle: RePEc:oup:restud:v:92:y:2025:i:2:p:1061-1125.