Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/331537 
Year of Publication: 
2025
Series/Report no.: 
IES Working Paper No. 18/2025
Publisher: 
Charles University in Prague, Institute of Economic Studies (IES), Prague
Abstract: 
This study examines how economic inequality influences the effectiveness of fiscal policy using a three-agent New Keynesian DSGE model with incomplete financial markets. The findings suggest that economies with a high share of liquidity-constrained households exhibit larger fiscal multipliers due to their higher marginal propensity to consume. Households respond differently to fiscal stimulus due to variations in their propensity to consume and ability to smooth consumption. Additionally, house prices exhibit a temporary decline in response to fiscal stimulus within the modeled framework. Sensitivity analyses show that factors such as loan-to-value ratios, household composition, and housing preferences significantly alter the fiscal multiplier, emphasizing the need to consider inequality in macroeconomic policy design.
Subjects: 
Fiscal Policy
Economic Inequality
DSGE Models
Fiscal Multiplier
Heterogeneous Agents
JEL: 
E62
D31
E21
C68
Document Type: 
Working Paper

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