Public Debt and Redistribution with Borrowing Constraints

Florin Bilbiie, Tommaso Monacelli and Roberto Perotti
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Roberto Perotti: Universita' Bocconi and IGIER - Bocconi University [Milan, Italy]

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Abstract: We build a model with financial imperfections and heterogeneous agents and analyse the effects of two types of fiscal policy: revenue-neutral, intratemporal redistribution; and debt-financed tax cuts, which we interpret as intertemporal redistribution. Under flexible prices, the two policies are either neutral or display effects that are at odds with the empirical evidence. With sticky prices, Ricardian equivalence always fails. A Robin Hood, revenue-neutral redistribution to borrowers is expansionary on aggregate activity. A uniform, debt-financed tax cut has a positive present-value multiplier on consumption, stemming from intertemporal substitution by the savers, who hold the public debt.

Keywords: Debt; Fiscal Policy; Policy; Redistribution; Revenue; Ricardian Equivalence; Tax (search for similar items in EconPapers)
Date: 2013-02
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Published in The Economic Journal, 2013, 123 (56), pp.64-98. ⟨10.1111/ecoj.12012⟩

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Related works:
Journal Article: Public Debt and Redistribution with Borrowing Constraints (2013)
Working Paper: Public Debt and Redistribution with Borrowing Constraints (2013)
Working Paper: Public Debt and Redistribution with Borrowing Constraints (2013)
Working Paper: Public Debt and Redistribution with Borrowing Constraints (2012)
Working Paper: Public Debt and Redistribution with Borrowing Constraints (2012)
Working Paper: Public Debt and Redistribution with Borrowing Constraints (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:hal-01052689

DOI: 10.1111/ecoj.12012

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