Working Paper
Why Might Lump-sum Transfers Not Be a Good Idea?
Abstract: We adopt an analytically tractable Aiyagari-type model to study the distinctive roles of unconditional lump-sum transfers and public debt in reducing consumption inequality due to uninsurable income risk. We show that in the absence of wealth inequality, using lump-sum transfers is not an optimal policy for reducing consumption inequality---because the Ramsey planner opts to rely solely on public debt to mitigate income risk without the need for lump-sum transfers. This result is surprising in light of the popularity of universal basic income advocated by many politicians and scholars.
Keywords: Lump-sum Transfers; Universal Basic Income; Ramsey Problem; Public Liquidity; Incomplete Markets; heterogeneous agents;
JEL Classification: C61; E22; E62; H21; H30;
https://doi.org/10.20955/wp.2021.002
Status: Published in Economics Letters
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Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2021-02-09
Number: 2021-002
Note: Publisher DOI: https://doi.org/10.1016/j.econlet.2021.110088
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- Publisher Article (2021-12) : Are unconditional lump-sum transfers a good idea?
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- Working Paper Revision (2021-06-14) : Are Unconditional Lump-sum Transfers a Good Idea?
- Working Paper Original (2021-02-09) : You are here.