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Inequality, imperfect competition and fiscal policy

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  • Pavlos Balamatsias

Abstract

We build a New Keynesian model with imperfectly competitive goods markets and heterogeneous people and examine their impact on fiscal multipliers and on the net increase in output and expenditure caused by fiscal policies, using the balanced budget multiplier. Results show that in highly unequal economies the maximum net increase in output and expenditure comes when governments increase expenditure and tax high-income workers because the adverse effects on the economy are smaller. However, when inequality decreases and enough people belong to the high-income group governments should fund expenditure by taxing low-income people. Finally, inequality also affects the welfare effects of fiscal policies.

Suggested Citation

  • Pavlos Balamatsias, 2017. "Inequality, imperfect competition and fiscal policy," EconStor Preprints 182243, ZBW - Leibniz Information Centre for Economics.
  • Handle: RePEc:zbw:esprep:182243
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    References listed on IDEAS

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    Cited by:

    1. Balamatsias, Pavlos, 2018. "Democracy and government spending," MPRA Paper 84975, University Library of Munich, Germany.

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    More about this item

    Keywords

    Income inequality; Fiscal multiplier; Public Expenditure; Taxation;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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