DP8641 Redistribution and the Multiplier
|Author(s):||Tommaso Monacelli, Roberto Perotti|
|Publication Date:||November 2011|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=8641|
Does it matter, for the size of the government spending multiplier, which category of agents bears the brunt of the necessary adjustment in taxes? In an economy with heterogeneous agents and imperfect financial markets, the answer depends on whether or not New Keynesian features, such are price rigidity, are present. If prices are flexible, the tax-financing rule is either neutral or leads to a larger multiplier when taxes are levied on the borrowing constrained agents. If prices are sticky, the multiplier is larger when taxes are levied on the unconstrained agents. We discuss the conditions under which these results hold. Furthermore, we study the real effects of fiscal expansions via pure, revenue-neutral, tax redistributions.