Inequality, Fiscal Policy and COVID19 Restrictions in a Demand-Determined Economy

Alan Auerbach, Yuriy Gorodnichenko and Daniel Murphy ()

No 27366, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We evaluate the effects of inequality, fiscal policy, and COVID19 restrictions in a model of economic slack with potentially rigid capital operating costs. Inequality has large negative effects on output, while also diminishing the effects of demand-side fiscal stimulus. COVID restrictions can reduce current-period GDP by more than is directly associated with the restrictions themselves when rigid capital costs induce firm exit. Higher inequality is associated with larger restriction multipliers. The effectiveness of fiscal policies depends on inequality and the joint distribution of capital operating costs and firm revenues. Furthermore, COVID19 restrictions can cause future inflation, as households tilt their expenditure toward the future.

JEL-codes: E32 E62 H2 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-mac
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Published as Auerbach, Alan J. & Gorodnichenko, Yuriy & Murphy, Daniel, 2021. "Inequality, fiscal policy and COVID19 restrictions in a demand-determined economy," European Economic Review, Elsevier, vol. 137(C).

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Related works:
Journal Article: Inequality, fiscal policy and COVID19 restrictions in a demand-determined economy (2021)
Working Paper: Inequality, fiscal policy and COVID19 restrictions in a demand-determined economy (2021)
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