Over the last decades, the United States has experienced a large increase in, both, income inequality and living standards. The workhorse models of optimal income taxation call for more redistribution as inequality rises. By contrast, living standards play no role for taxes and transfers in...

Empirical work suggests that while government spending induces an increase in output, it does not signi ficantly decrease private consumption. Contrary to these fi ndings, most representative-household models in macroeconomics predict a crowding-out of private consumption by government spending....

This paper investigates how government spending multipliers depend on the distribution of taxes across households. We exploit historical variations in the financing of spending in the U.S. since 1913 to show that multipliers are positive only when financed with more progressive taxes, and zero...