On Government Spending and Income Inequality under Monopolistic Competition

Juin-jen Chang, Jang-Ting Guo and Wei-Neng Wang
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Wei-Neng Wang: National Taichung University of Science and Technology

No 202103, Working Papers from University of California at Riverside, Department of Economics

Abstract: This paper systematically examines the theoretical as well as quantitative interrelations between government spending and disposable-income inequality in a tractable monopolistically competitive Ramsey macroeconomy. Upon a higher government size, we analytically show that whether the long-run after-tax Gini coefficient rises or falls depends on the sign and magnitude of the wealth inequality effect versus those of the adjusted-labor effect. Under (i) a mild level of productive public expenditures and (ii) a sufficiently high intertemporal elasticity of consumption substitution, our calibrated model is able to generate qualitatively as well as quantitatively consistent income-inequality effects of government spending vis-Ã -vis recent estimation results.

Keywords: Government Spending; Income Inequality; Monopolistic Competition. (search for similar items in EconPapers)
JEL-codes: D31 E30 H50 (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pub
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:202103

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