Fiscal multipliers: A heterogenous‐agent perspective

Tobias Broer (), Per Krusell and Erik Öberg
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Tobias Broer: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Per Krusell: IIES - Institute for International Economic Studies, CEPR - Center for Economic Policy Research, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research
Erik Öberg: Uppsala University, UCLS - Uppsala Center for Labor Studies

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Abstract: We use an analytically tractable heterogeneous‐agent (HANK) version of the standard New Keynesian model to show how the size of fiscal multipliers depends on (i) the distribution of factor incomes, and (ii) the source of nominal rigidities. With sticky prices but flexible wages, the standard representative‐agent (RANK) model predicts large multipliers because profits fall after a fiscal stimulus and the resulting negative income effect makes the representative worker work harder. Our HANK model, where workers do not own stock, and thus do not receive profit income, predicts smaller fiscal multipliers. In fact, they are smaller with sticky prices than with flexible prices. When wages are the source of nominal rigidity, in contrast, fiscal multipliers are close to one, independently of income heterogeneity and price stickiness.

Keywords: Fiscal policy; Heterogeneous agents; New Keynesian model (search for similar items in EconPapers)
Date: 2023-07
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Published in Quantitative Economics, 2023, 14 (3), pp.799-816. ⟨10.3982/QE1901⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-04353223

DOI: 10.3982/QE1901

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