Abstract
This study proposes a general equilibrium life-cycle model where households make labor supply decisions and smooth consumption using one asset. This asset involves a stochastic adjustment cost. A recession arises when the tax revenue generated from a tax hike is spent as government expenditures. A prolonged expansion occurs when the revenue is distributed as transfers, especially to older and lower income households with higher savings. The tax hike invariably leads to recession when the adjustment cost is absent. Thus, how tax revenue is spent can significantly affect the aggregate economy once asset illiquidity is considered.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
