For whom the bill tolls: redistributive consequences of a monetary-fiscal stimulus

Michal Brzoza-Brzezina, Marcin Kolasa, Krzysztof Makarski and Julia Jabłońska

No 2998, Working Paper Series from European Central Bank

Abstract: During the COVID-19 pandemic, governments in the euro area sharply increased spending while the European Central Bank eased financing conditions. We use this episode to assess how such a concerted monetary-fiscal stimulus redistributes welfare between various age cohorts. Our assessment involves not only the income side of household balance sheets (mainly direct effects of transfers) but also the more obscure financing side that, to a substantial degree, occurred via indirect effects (with a prominent role of the inflation tax). Using a quantitative life-cycle model, and assuming that the deficit was partly unfunded by future taxes, we document that young households benefited from the stimulus, while middle-aged and older agents mainly paid the bill. Crucially, most welfare redistribution was due to indirect effects related to macroeconomic adjustment that resulted from the stimulus. As a consequence, even though all age cohorts received significant transfers, the welfare of some actually decreased. JEL Classification: E31, E51, E52, H5, J11

Keywords: COVID-19; fiscal expansion; monetary policy; redistribution (search for similar items in EconPapers)
Date: 2024-11
New Economics Papers: this item is included in nep-ban, nep-dge, nep-eec and nep-mon
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Working Paper: For whom the bill tolls: redistributive consequences of a monetary-fiscal stimulus (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20242998

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