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Workers, capitalists, and the government: fiscal policy and income (re)distribution

Cristiano Cantore () and Lukas Freund

No 858, Bank of England working papers from Bank of England

Abstract: This paper develops a tractable capitalist-worker New Keynesian model to study the interaction of fiscal policy and household heterogeneity. Workers can save in bonds subject to portfolio adjustment costs; firm ownership is concentrated among capitalists who do not supply labor. The model matches empirical intertemporal marginal propensities to consume that shape the private sector’s dynamic response to policy interventions, it avoids implausible profit income effects on labor supply and the solution has robust stability properties. This setup delivers both more pronounced redistributive and more muted aggregate effects of fiscal stimulus relative to the traditional two-agent model.

Keywords: Business cycles; determinacy; government spending shocks; fiscal policy; New Keynesian; labor share; redistribution. (search for similar items in EconPapers)
JEL-codes: C52 E12 E25 E32 E62 (search for similar items in EconPapers)
Pages: 80 pages
Date: 2020-04-24
New Economics Papers: this item is included in nep-dge and nep-mac
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Working Paper: Workers, Capitalists, and the Government: Fiscal Policy and Income (Re)Distribution (2020) Downloads
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