2017/05 | LEM Working Paper Series | |
Inequality, Redistributive Policies and Multiplier Dynamics in an Agent-Based Model with Credit Rationing |
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Elisa Palagi, Mauro Napoletano, Andrea Roventini and Jean-Luc Gaffard |
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Keywords | ||
income inequality, scal multipliers, redistributive policies, credit-rationing, agent-based models
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JEL Classifications | ||
E63, E21, C63
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Abstract | ||
We build an agent-based model populated by households with
heterogenous and time-varying financial conditions in order to study
how different inequality shocks affect income dynamics and the effects
of different types of fiscal policy responses. We show that inequality
shocks generate persistent falls in aggregate income by increasing the
fraction of credit-constrained households and by lowering aggregate
consumption. Furthermore, we experiment with different types of fiscal
policies to counter the effects of inequality-generated recessions,
namely deficit-spending direct government consumption and redistributive
subsidies financed by different types of taxes. We find that subsidies are
in general associated with higher fiscal multipliers than direct
government expenditure, as they appear to be better suited to sustain
consumption of lower income households after the shock. In addition,
we show that the effectiveness of redistributive subsidies increases if
they are financed by taxing financial incomes or savings.
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