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Fiscal multipliers: A heterogenous‐agent perspective

Author

Listed:
  • Tobias Broer

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CEPR - Center for Economic Policy Research, IIES - Institute for International Economic Studies)

  • Per Krusell

    (IIES - Institute for International Economic Studies, CEPR - Center for Economic Policy Research, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research)

  • Erik Öberg

    (Uppsala University)

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.

Suggested Citation

  • Tobias Broer & Per Krusell & Erik Öberg, 2023. "Fiscal multipliers: A heterogenous‐agent perspective," Post-Print halshs-04758813, HAL.
    • Handle: RePEc:hal:journl:halshs-04758813
    DOI: 10.3982/QE1901
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