Abstract

This paper analyses the interaction between redistribution, public debt and fiscal policy in a model with liquidity constraints. This interaction determines the final shape of (wealth/income) distribution and the effects of fiscal policy. Thus, the social optimum redistribution is a function of the level of public debt, and of the rule of intergenerations redistribution implicit in the fiscal - balanced budget - policy rule. Financing the budget through public debt issuing increases inequality. And redistribution within living generations causes an additional intertemporal redistribution across generations, it affects the burden of public debt and its maximum sustainable level. On the one hand, these cross effects among policies imply that redistribution cannot be considered a fully independent instrument of anti-poverty policy. On the other hand, redistribution can be used to pursue macroeconomic objectives, and macroeconomic policy can also be used to shape the distribution. The paper examines some examples of these interactions through numerical simulations.