Public Debt and Redistribution with Borrowing Constraints

We build a model with financial imperfections and heterogeneous agents and analyse the effects of two types of fiscal policy: revenue-neutral, intratemporal redistribution; and debt-financed tax cuts, which we interpret as intertemporal redistribution. Under flexible prices, the two policies are either neutral or display effects that are at odds with the empirical evidence. With sticky prices, Ricardian equivalence always fails. A Robin Hood, revenue-neutral redistribution to borrowers is expansionary on aggregate activity. A uniform, debt-financed tax cut has a positive present-value multiplier on consumption, stemming from intertemporal substitution by the savers, who hold the public debt.