Capital and Income Inequality: an Aggregate-Demand Complementarity

Bilbiie, F O, Kanzig, D R and Surico, P (2021) Capital and Income Inequality: an Aggregate-Demand Complementarity. Working Paper. Working Paper. (Unpublished) OPEN ACCESS

Abstract

A novel complementarity between capital and income inequality leads to a significant amplification of the effects of aggregate-demand shocks on consumption. We characterize this finding using a simple 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. After an interest rate shock, consumption inequality is more countercyclical than income inequality, consistent with the available empirical evidence.

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Item Type: Monograph (Working Paper)
Subject Areas: Economics
Additional Information:

Surico gratefully acknowledges financial support from the European Research Council (Consolidator Grant 771976)

Funder Name: European Research Council
Date Deposited: 10 Sep 2021 13:25
Last Modified: 15 Oct 2021 12:22
URI: https://lbsresearch.london.edu/id/eprint/1953
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