Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/174555 
Year of Publication: 
2017
Series/Report no.: 
LEM Working Paper Series No. 2017/05
Publisher: 
Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM), Pisa
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.
Subjects: 
income inequality
scal multipliers
redistributive policies
credit-rationing
agent-based models
JEL: 
E63
E21
C63
Document Type: 
Working Paper

Files in This Item:
File
Size
447.07 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.