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

25 Pages Posted: 1 Feb 2017

See all articles by Elisa Palagi

Elisa Palagi

Scuola Superiore Sant'Anna di Pisa

Mauro Napoletano

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG); Observatoire Français des Conjonctures Economiques (OFCE); SKEMA Business School; Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM)

Andrea Roventini

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM); Observatoire Français des Conjonctures Economiques (OFCE)

Jean-Luc Gaffard

Université de Nice-Sophia Antipolis; Institut Universitaire de France; Observatoire Français des Conjonctures Economiques (OFCE)

Date Written: January 31, 2017

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, fiscal multipliers, redistributive policies, credit-rationing, agent-based models

JEL Classification: E63, E21, C63

Suggested Citation

Palagi, Elisa and Napoletano, Mauro and Roventini, Andrea and Gaffard, Jean-Luc, Inequality, Redistributive Policies and Multiplier Dynamics in an Agent-Based Model with Credit Rationing (January 31, 2017). Available at SSRN: https://ssrn.com/abstract=2908883 or http://dx.doi.org/10.2139/ssrn.2908883

Elisa Palagi (Contact Author)

Scuola Superiore Sant'Anna di Pisa ( email )

Biblioteca Scuola Superiore Sant'Anna
Piazza Martiri della Liberta, n. 33
Pisa, 56127
Italy

Mauro Napoletano

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG) ( email )

250, rue Albert Einstein
Valbonne, 06560
France

Observatoire Français des Conjonctures Economiques (OFCE) ( email )

60, rue Dostoïevski
Sophia-Antipolis Cedex, 06902
France

HOME PAGE: http://www.ofce.sciences-po.fr

SKEMA Business School ( email )

60 rue Dostoïevski
Sophia Antipolis, 06902
France

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta, 33
Pisa, I-56127
Italy

Andrea Roventini

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta', 33-I-56127
Pisa
Italy

Observatoire Français des Conjonctures Economiques (OFCE)

69 Quai d'Orsay
Paris 75004
France

Jean-Luc Gaffard

Université de Nice-Sophia Antipolis ( email )

Sophia Antipolis
B.P. 70
Nice, 06108
France

Institut Universitaire de France

103, bld Saint-Michel
75005 Paris
France

Observatoire Français des Conjonctures Economiques (OFCE)

69 Quai d'Orsay
Paris 75007
France

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