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Household heterogeneity and the value of government spending multiplier

Author

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  • Paweł Kopiec

    (Narodowy Bank Polski)

Abstract

This paper provides an analytical decomposition of the fiscal multiplier in economy populated with heterogeneous households, uninsured idiosyncratic income risk and frictional product market. Similarly to Auclert (2019), the derived expression consists of interpretable, model-based channels that describe the transmission of government spending shocks by private consumption. Calibrated model is used to estimate the magnitude of multipliers and their structure under alternative fiscal and monetary rules. Analytical and quantitative comparison to the multiplier’s formula in economy with identical agents indicates that household heterogeneity plays a crucial role in the propagation of fiscal expenditures shocks.

Suggested Citation

  • Paweł Kopiec, 2019. "Household heterogeneity and the value of government spending multiplier," NBP Working Papers 321, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:321
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    References listed on IDEAS

    as
    1. Iván Werning, 2015. "Incomplete Markets and Aggregate Demand," NBER Working Papers 21448, National Bureau of Economic Research, Inc.
    2. Michael Woodford, 2011. "Simple Analytics of the Government Expenditure Multiplier," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 1-35, January.
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    Cited by:

    1. Cantore, Cristiano & Freund, Lukas B., 2021. "Workers, capitalists, and the government: fiscal policy and income (re)distribution," Journal of Monetary Economics, Elsevier, vol. 119(C), pages 58-74.
    2. Kopiec, Paweł, 2020. "Employment prospects and the propagation of fiscal stimulus," Journal of Economic Dynamics and Control, Elsevier, vol. 117(C).
    3. Kopiec, Paweł, 2024. "The aggregate and distributional effects of fiscal stimuli," Economic Modelling, Elsevier, vol. 134(C).
    4. Arrigoni, Simone & Boyd, Laura & McIndoe-Calder, Tara, 2022. "Household Economic Resilience," Quarterly Bulletin Articles, Central Bank of Ireland, pages 88-113, October.
    5. Kopiec, Paweł, 2022. "The government spending multiplier in the Heterogeneous Agent New Keynesian model," European Economic Review, Elsevier, vol. 145(C).
    6. Mathias Klein & Roland Winkler, 2021. "The government spending multiplier at the zero lower bound: International evidence from historical data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(6), pages 744-759, September.

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    More about this item

    Keywords

    Heterogeneous Agents; Fiscal Stimulus;

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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