Capital and Income Inequality: An Aggregate-Demand Complementarity
66 Pages Posted: 4 Dec 2019 Last revised: 15 Mar 2021
Date Written: November 2019
Abstract
A novel complementarity between capital and income inequality leads to a significant amplification of the effects of monetary policy on consumption. We characterize this finding analytically and quantitatively, using a model with heterogeneity in household saving and income, nominal rigidities, and capital. A fiscal policy that redistributes capital income causes further amplification, whereas redistributing profits generates dampening.
JEL Classification: E21, E22, E32, E44, E52
Suggested Citation: Suggested Citation
Bilbiie, Florin Ovidiu and Känzig, Diego R. and Surico, Paolo, Capital and Income Inequality: An Aggregate-Demand Complementarity (November 2019). CEPR Discussion Paper No. DP14118, Available at SSRN: https://ssrn.com/abstract=3496607
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