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Inequality, Redistributive Policies and Multiplier Dynamics in an Agent-Based Model with Credit Rationing

Elisa Palagi, Mauro Napoletano (), Andrea Roventini and Jean-Luc Gaffard ()

LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy

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.

Keywords: income inequality; scal multipliers; redistributive policies; credit-rationing; agent-based models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-hme, nep-mac and nep-pbe
Date: 2017-06-02
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Related works:
Journal Article: Inequality, Redistributive Policies and Multiplier Dynamics in an Agent-based Model with Credit Rationing (2017) Downloads
Working Paper: Inequality, Redistributive Policies and multipliers dynamics in an agent based model with Credit rationing (2017) Downloads
Working Paper: Inequality, Redistributive Policies and Multiplier Dynamics in an Agent-Based Model with Credit Rationing (2017) Downloads
Working Paper: Inequality, Redistributive Policies and Multiplier Dynamics in an Agent-based Model with Credit Rationing (2017) Downloads
Working Paper: Inequality, redistributive policies and multiplierdynamics in an agent-based model with credit rationing (2017) Downloads
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