Does Redistribution Increase Output? The Centrality of Labor Supply

42 Pages Posted: 7 Mar 2014 Last revised: 14 May 2015

See all articles by Kartik Athreya

Kartik Athreya

Federal Reserve Banks - Federal Reserve Bank of Richmond

Andrew Owens

Federal Reserve Banks - Federal Reserve Bank of Richmond

Felipe F. Schwartzman

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: February 28, 2014

Abstract

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 incomplete-markets model extended to allow 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.

Keywords: Multipliers, Redistribution, Labor supply, Idiosyncratic Risk

JEL Classification: D90, E21, E25, E63

Suggested Citation

Athreya, Kartik and Owens, Andrew and Schwartzman, Felipe F., Does Redistribution Increase Output? The Centrality of Labor Supply (February 28, 2014). FRB Richmond Working Paper No. 14-04R, Available at SSRN: https://ssrn.com/abstract=2404935 or http://dx.doi.org/10.2139/ssrn.2404935

Kartik Athreya (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Andrew Owens

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Felipe F. Schwartzman

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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