Cantore, C. and Freund, L. B.

Workers, Capitalists, and the Government: Fiscal Policy and Income (Re)Distribution

CWPE2095

Abstract: We propose a novel two-agent New Keynesian model to study the interaction of fiscal policy and household heterogeneity in a tractable environment. Workers can save in bonds subject to portfolio adjustment costs; firm ownership is concentrated among capitalists who do not supply labor. The model is consistent with micro data on empirical intertemporal marginal propensities to consume, and it avoids implausible profit income effects on labor supply. Relative to the traditional two-agent model, these features imply, respectively, a lower sensitivity of consumption to the composition of public financing; and smaller fiscal multipliers alongside pronounced redistributive effects.

Keywords: Fiscal Policy, Heterogeneity, HANK, TANK

JEL Codes: E12 E21 E25 E32 E62

Author links: Lukas Freund  

PDF: https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe2095.pdf

Open Access Link: https://doi.org/10.17863/CAM.61857

Published Version of Paper: Workers, Capitalists, and the Government: Fiscal Policy and Income (Re)Distribution, Cantore, C. and Freund, L. B., Journal of Monetary Economics (2021)

<< CWPE Home | CWPE List 2020 >>