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Redistribution and the Multiplier

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  • Tommaso Monacelli
  • Roberto Perotti

Abstract

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.

Suggested Citation

  • Tommaso Monacelli & Roberto Perotti, 2011. "Redistribution and the Multiplier," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(4), pages 630-651, November.
    • Handle: RePEc:pal:imfecr:v:59:y:2011:i:4:p:630-651
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    1. Bilbiie, Florin O. & Monacelli, Tommaso & Perotti, Roberto, 2024. "Stabilization vs. Redistribution: The optimal monetary–fiscal mix," Journal of Monetary Economics, Elsevier, vol. 147(S).
    2. Axelle Ferriere & Gaston Navarro, 2013. "The Heterogeneous Effects of Government Spending: It's All About Taxes," Working Papers 13-18, New York University, Leonard N. Stern School of Business, Department of Economics.
    3. Florin O. Bilbiie & Tommaso Monacelli & Roberto Perotti, 2013. "Public Debt and Redistribution with Borrowing Constraints," Economic Journal, Royal Economic Society, vol. 0, pages 64-98, February.
    4. Bracco,Jessica Roxana & Galeano,Luciana Maria & Juarros,Pedro Francisco & Riera-Crichton,Daniel & Vuletin,Guillermo Javier, 2021. "Social Transfer Multipliers in Developed and Emerging Countries : The Role of Hand-to-Mouth Consumers," Policy Research Working Paper Series 9627, The World Bank.
    5. Giambattista, Eric & Pennings, Steven, 2017. "When is the government transfer multiplier large?," European Economic Review, Elsevier, vol. 100(C), pages 525-543.
    6. Punzo Chiara, & Rossi Lorenza, 2021. "Is a Money-financed Fiscal Stimulus Desirable?," Working papers 818, Banque de France.
    7. Ermelinda Lopes & Ermelinda Lopes Silva, 2016. "Tieboutian market Structure and Collective Decision Process Within a Global Competition Policy," EcoMod2016 9292, EcoMod.
    8. Giambattista,Eric & Pennings,Steven Michael, 2017. "When is the government transfer multiplier large ?," Policy Research Working Paper Series 8184, The World Bank.

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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