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

Author

Listed:
  • Elisa Palagi

    (Scuola Superiore Sant'Anna, Pisa (Italy))

  • Mauro Napoletano

    (OFCE Sciences-Po
    SKEMA Business School)

  • Andrea Roventini

    (University of Verona (Italy)
    Scuola Superiore Sant'Anna, Pisa (Italy))

  • Jean-Luc Gaffard

    (OFCE Sciences-Po
    Université Côte d'Azur
    GREDEG CNRS
    Institut Universitaire de France)

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 e ects 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.

Suggested Citation

  • Elisa Palagi & Mauro Napoletano & Andrea Roventini & Jean-Luc Gaffard, 2017. "Inequality, Redistributive Policies and Multiplier Dynamics in an Agent-Based Model with Credit Rationing," GREDEG Working Papers 2017-39, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
  • Handle: RePEc:gre:wpaper:2017-39
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    References listed on IDEAS

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    Cited by:

    1. Cathal O'Donoghue & Gijs Dekkers, 2018. "Increasing the Impact of Dynamic Microsimulation Modelling," International Journal of Microsimulation, International Microsimulation Association, vol. 11(1), pages 61-96.
    2. Papadopoulos, Georgios, 2019. "Income inequality, consumption, credit and credit risk in a data-driven agent-based model," Journal of Economic Dynamics and Control, Elsevier, vol. 104(C), pages 39-73.
    3. Alberto Cardaci & Francesco Saraceno, 2019. "Between Scylla And Charybdis: Income Distribution, Consumer Credit, And Business Cycles," Economic Inquiry, Western Economic Association International, vol. 57(2), pages 953-971, April.
    4. Botta, Alberto & Caverzasi, Eugenio & Russo, Alberto & Gallegati, Mauro & Stiglitz, Joseph E., 2021. "Inequality and finance in a rent economy," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 998-1029.
    5. Papadopoulos, Georgios, 2020. "Probing the mechanism: lending rate setting in a data-driven agent-based model," MPRA Paper 102749, University Library of Munich, Germany.

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    More about this item

    Keywords

    income inequality; fiscal multipliers; redistributive policies; credit-rationing; agent-based models;
    All these keywords.

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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