DP5552 Aggregate Implications of Wealth Redistribution: The Case of Inflation

Author(s): Matthias Doepke , Martin Schneider

Publication Date: March 2006

Keyword(s): aggregate effects , inflation , redistribution

JEL(s): D31 , D58 , E31 , E50

Programme Areas: International Macroeconomics , Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP5552.asp

This paper shows that a zero-sum redistribution of wealth within a country can have persistent aggregate effects. Motivated by the case of an unanticipated inflation episode, we consider redistribution shocks that shift resources from old to young households. Aggregate effects arise because there are asymmetries in the reaction of winners and losers to changes in wealth. We focus on two sources of asymmetries: differences in the average age of winners and losers, and differences in their labour force status.