Macro Implications of Government Redistributive Tax-Transfer Policies

Aggregation conditions permitting macro variables to be expressed as functions of other macro variables have long been sought in macroeconomics. For example, conditions have been sought permitting aggregate consumption to be expressed as a function of aggregate income, independently of the distribution of income across agents. This article uses a 3-period lived overlapping generations economy to examine the extent to which macro variables such as aggregate consumption are invariant to government attempts to redistribute income across agents through selective tax-transfer policies. It shows that conditions for invariance in this context are much stronger than found for the standard Walrasian general equilibrium economy. Annotated pointers to related work can be accessed here: http://www.econ.iastate.edu/tesfatsi/dehome.htm