Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/182243 
Year of Publication: 
2017
Series/Report no.: 
MPRA Paper No. 87820
Publisher: 
Ludwig-Maximilians-Universität (LMU), Munich
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.
Subjects: 
Income inequality
Fiscal multiplier
Public Expenditure
Taxation
JEL: 
D63
E12
E62
URL of the first edition: 
Document Type: 
Working Paper

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