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- Title
Public Debt and Redistribution with Borrowing Constraints.
- Authors
Bilbiie, Florin O.; Monacelli, Tommaso; Perotti, Roberto
- Abstract
We build a model with financial imperfections and heterogeneous agents and analyse the effects of two types of fiscal policy: revenue-neutral, intratemporal redistribution; and debt-financed tax cuts, which we interpret as intertemporal redistribution. Under flexible prices, the two policies are either neutral or display effects that are at odds with the empirical evidence. With sticky prices, Ricardian equivalence always fails. A Robin Hood, revenue-neutral redistribution to borrowers is expansionary on aggregate activity. A uniform, debt-financed tax cut has a positive present-value multiplier on consumption, stemming from intertemporal substitution by the savers, who hold the public debt.
- Subjects
FISCAL policy; TAX cuts; WEALTH; ECONOMIC stimulus; PUBLIC debts; GOVERNMENT revenue; INCOME redistribution; RICARDIAN equivalence theorem; ECONOMIC equilibrium; ECONOMICS; GOVERNMENT lending; CHARTS, diagrams, etc.; GOVERNMENT policy
- Publication
Economic Journal, 2013, Vol 123, Issue 566, pF64
- ISSN
0013-0133
- Publication type
Article
- DOI
10.1111/ecoj.12012