Fiscal Multipliers: A Heterogenous-Agent Perspective

Tobias Broer, Per Krusell and Erik Öberg

No 28366, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E0 (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-dge, nep-hme, nep-mac and nep-ore
Note: EFG ME
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Citations: View citations in EconPapers (5)

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Working Paper: Fiscal Multipliers: A Heterogeneous-Agent Perspective (2021)
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