Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174555
Authors: 
Palagi, Elisa
Moneta, Alessio
Napoletano, Mauro
Roventini, Andrea
Gaffard, Jean-Luc
Year of Publication: 
2017
Series/Report no.: 
LEM Working Paper Series 2017/05
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

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