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Working Paper
Does Redistribution Increase Output? The Centrality of Labor Supply
The aftermath of the recent recession has seen numerous calls to use transfers to poorer households as a means to enhance aggregate activity. We show that the key to understanding the direction and size of such interventions lies in labor supply decisions. We study the aggregate impact of short-term redistributive economic policy in a standard incomplete-markets model. We characterize analytically conditions under which redistribution leads to an increase or decrease in effective hours worked, and hence, output. We then show that under the parameterization that matches the wealth distribution ...
Working Paper
Fiscal Policy and Aggregate Demand in the U.S. Before, During and Following the Great Recession
We examine the effect of federal and subnational fiscal policy on aggregate demand in the U.S. by introducing the fiscal effect (FE) measure. FE can be decomposed into three components. Discretionary FE quantifies the effect of discretionary or legislated policy changes on aggregate demand. Cyclical FE captures the effect of the automatic stabilizers--changes in government taxes and spending arising from the business cycle. Residual FE measures the effect of all changes in government revenues and outlays which cannot be categorized as either discretionary or cyclical; for example, it captures ...