Does Redistribution Increase Output? The Centrality of Labor Supply

Kartik Athreya, Andrew Owens, Felipe F. Schwartzman
2014 Social Science Research Network  
The aftermath of the recent recession has seen calls to use transfers to poorer households as a means to enhance aggregate economic activity. The goal of this paper is to study the effects of wealth redistribution from rich to poor households on consumption and output in the short run. We first demonstrate analytically how the direction and size of the output effects of such interventions depends on labor supply decisions. We then show that in a standard incompletemarkets model extended to
more » ... for nominal rigidities and parametrized to match the U.S. wealth distribution, wealth redistribution does lead to a temporary boom in consumption but not in output.
doi:10.2139/ssrn.2404935 fatcat:2vgveizjlzgipmeiqmvkazetye