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

Authored by Andrea Roventini, Mauro Napoletano, Elisa Palagi, Jean-Luc Gaffard

Date Published: 2017

DOI: 10.1007/s40797-017-0055-1

Sponsors: European Union

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

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 the introduction of subsidies is in general associated with higher fiscal multipliers than cases with direct government expenditure alone, as they appear to be better suited to sustain consumption of lower income households after the shock.

Tags

Agent-based models Financial fragility Income inequality Fiscal multipliers Redistributive policies Credit-rationing