Workers, capitalists, and the government: fiscal policy and income (re)distribution

We propose a novel two-agent New Keynesian model to study the interaction of fiscal policy and household heterogeneity in tractable environment. Workers can save bonds subject portfolio adjustment costs; firm ownership is concentrated among capitalists who do not supply labor. The consistent with micro data on empirical intertemporal marginal propensities consume, it avoids implausible profit income effects labor supply. Relative traditional model, these features imply, respectively, lower sensitivity consumption composition public financing; smaller multipliers alongside pronounced redistributive effects.