The distributional implications of business cycles and fiscal policy

Abstract

This thesis presents three self-contained essays that emphasize the relevance of household heterogeneity and distributional implications in the analysis of business cycle dynamics and fiscal policy. In Chapter 2, I investigate the impact of redistributive taxation on private borrowing constraints and the cross-sectional distributions of consumption and income. I show that tax policy can have a substantial effect on households’ access to private credit markets in the sense that borrowing constraints become tighter when redistribution is increased. Chapter 3 studies the role of household heterogeneity in the transmission of government expenditure shocks and provides a mechanism that naturally generates state-dependent fiscal multipliers. In Chapter 4, I demonstrate that interpersonal comparison is an important driver of short-run credit movements.