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An Agent-based Model of Trickle-up Growth and Income Inequality

Author

Listed:
  • Elisa Palagi

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

  • Mauro Napoletano

    (Université Côte d'Azur
    GREDEG CNRS
    OFCE Sciences-Po
    SKEMA Business School)

  • Andrea Roventini

    (Institute of Economics and EMbeDS, Scuola Superiore Sant'Anna
    Sciences Po, OFCE)

  • Jean-Luc Gaffard

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

Abstract

We build an agent-based model to study how coordination failures, credit constraints and unequal access to investment opportunities affect inequality and aggregate income dynamics. The economy is populated by households who can invest in alternative projects associated with different productivity growth rates. Access to investment projects also depends on credit availability. The income of each household is determined by the output of the project but also by aggregate demand conditions. We show that aggregate dynamics is affected by income distribution. Moreover, we show that the model features a trickle-up growth dynamics. Redistribution towards poorer households raises aggregate demand and is beneficial for the income growth of all agents in the economy. Extensive numerical simulations show that our model is able to reproduce several stylized facts concerning income inequality and social mobility. Finally, we test the impact of redistributive fiscal policies, showing that fiscal policies facilitating access to investment opportunities by poor households have the largest impact in terms of raising long-run aggregate income and decreasing income inequality. Moreover, policy timing is important: fiscal policies that are implemented too late may have no significant effect on inequality.

Suggested Citation

  • Elisa Palagi & Mauro Napoletano & Andrea Roventini & Jean-Luc Gaffard, 2021. "An Agent-based Model of Trickle-up Growth and Income Inequality," GREDEG Working Papers 2021-29, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
  • Handle: RePEc:gre:wpaper:2021-29
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    More about this item

    Keywords

    income inequality; social mobility; credit constraints; coordination failures; effective demand; trickle-up growth; fiscal policy.;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • 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

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