Government Purchases Over the Business Cycle: the Role of Economic and Political Inequality / Ruediger Bachmann, Jinhui Bai.

Format:

Book

Author/Creator:

Bachmann, Ruediger.

Contributor:

National Bureau of Economic Research.

Bai, Jinhui.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16247.

NBER working paper series no. w16247

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Government Purchases Over the Business Cycle

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

This paper explores the implications of economic and political inequality for the business cycle comovement of government purchases. We set up and compute a heterogeneous-agent neoclassical growth model, where households value government purchases which are financed by income taxes. A key feature of the model is a wealth bias in the political aggregation process. When calibrated to U.S. wealth inequality and exposed to aggregate productivity shocks, such a model is able to generate milder procyclicality of government purchases than models with no political wealth bias. The degree of wealth bias that matches the observed mild procyclicality of government purchases in the data, is consistent with cross-sectional data on political participation.

Notes:

Print version record

August 2010.