Fiscal Policy and Income Distribution

Authors

  • Osvaldo Larrañaga Programa de Postgrado en Economía, ILADES/Georgetown University. Departamento de Economía, Universidad de Concepción image/svg+xml

Keywords:

fiscal policy, income distribution, fiscal adjustment, external debt, general equilibrium, welfare

Abstract

This paper studies the distributional implications of fiscal policy. After a review of the Chilean experience in the eighties, a general equilibrium, two-period optimizing model is developed to evaluate the welfare effects of fiscal adjustment following an increase in the external payments of the publicly held external debt. The model considers two private sector representative agents: a capitalist and a worker. The government finances the external transfer with an internal transfer. The following fiscal policies are analyzed: lump sum transfers, direct taxes, inflation tax, public investment, and public debt. There are three channels by which the adjustment policy affects the welfare of private agents. The first channel is the direct impact of fiscal policy on private sector agents income. The second channel is related to the impact of the adjustment policy on growth and future income. Third, a current adjustment causes a future fiscal deficit which then involves an additional internal transfer between private sector agents.

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References

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Published

1991-04-30

How to Cite

Larrañaga, O. (1991). Fiscal Policy and Income Distribution. Economic Analysis Review, 6(1), 45–80. Retrieved from https://www.rae-ear.org/index.php/rae/article/view/236

Issue

Vol. 6 No. 1 (1991)

Section

Articles

License

Copyright (c) 1991 Osvaldo Larrañaga

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This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

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