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The Redistributive Effects of a Money-Financed Fiscal Stimulus

Chiara Punzo () and Lorenza Rossi ()

No def076, DISCE - Working Papers del Dipartimento di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: This paper analyzes the redistributive channel of a money financed fiscal stimulus (MFFS). It shows that the way in which this regime is implemented is crucial to determine its redistributive effects and consequently its effectiveness. In normal times, the most effective regime is a MFFS with no additional intervention by the Central Bank to stabilize the real public debt using infiation, whereas a MFFS accompanied by real debt stabilization - through the adjustment of seigniorage - is the most effective one in a ZLB scenario. In a TANK model this regime is so effec- tive to avoid the recessionary effects implied by the ZLB. This result does not hold in a RANK model, where the redistributive channel is absent. Remarkably, contrary to the common wisdom a MFFS is followed by a moderate increase of infiation, which is only temporarily higher than the target.

Keywords: Money-Financed scal stimulus; seignorage; govern- ment spending; redistribution; borrower-saver; scal multipliers; welfare; RANK versus TANK. (search for similar items in EconPapers)
JEL-codes: E32 E52 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Date: 2019-01
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