NO FISCAL NEUTRALITY, PUBLIC SPENDING AND AGENTS HETEROGENEOUS

ABSTRACT

The objective of this study is to verify if fiscal policy is not neutral in an endogeneity of public spending environment with heterogeneous agents. Fiscal policy is herein considered as being conducted by two instruments, namely the lump-sum taxes and public spending. To achieve the proposed objective it has been built up a new Keynesian model based on the works by Blanchard (1985) and Leith & Thadden (2008). The results of the dynamic system indicate that monetary and fiscal policies should be active, which reveals the non-neutrality of fiscal policy.

KEY-WORDS:
fiscal policy; government expenditures; non-Ricardian agents.