Title: | The Heterogeneous Effects of Government Spending: It's All About Taxes |
Authors: | Ferriere, Axelle Navarro, Gaston |
Keywords: | Fiscal Stimulus, Government Spending, Multiplier;Transfers, Heterogeneous Agents |
Issue Date: | 13-Feb-2014 |
Abstract: | Empirical work suggests that while government spending induces an increase in output, it does not signi ficantly decrease private consumption. Contrary to these fi ndings, most representative-household models in macroeconomics predict a crowding-out of private consumption by government spending. To address this issue, we develop a model with heterogeneous households and uninsurable idiosyncratic risk as in Aiyagari (1994). In a model with heterogeneous households, progressivity of taxes is a key determinant of the eff ects of government spending. A rise in government spending can be expansionary, both for output and consumption, if financed with more progressive labor taxes. However, it is contractionary if financed with less progressive taxes. With a narrative approach, we use large changes in military spending to provide evidence that government spending in the United States has been expansionary only in periods of increasing progressivity. |
URI: | http://hdl.handle.net/2451/33558 |
Rights: | Copyright Axelle Ferriere and Gaston Navarro, February 2014. |
Appears in Collections: | Economics Working Papers |
Files in This Item:
File | Description | Size | Format | |
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FerriereNavarro_HeterogenGovtSpending_Feb2014.pdf | 531.2 kB | Adobe PDF | View/Open |
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