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


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 the introduction of subsidies is in general associated with higher fiscal multipliers than cases with direct government expenditure alone, as they appear to be better suited to sustain consumption of lower income households after the shock.

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  1. For a survey on macroeconomic agent-based models, see Fagiolo and Roventini (2012, 2017).

  2. As pointed out by Fagiolo and Roventini (2012, 2017), this method permits to have a distribution of a given statistics computed on simulated variables. In fact, given the stochastic nature of the process, each Monte–Carlo run will give a different value of such statistics. By analyzing how this statistics depends on some initial parameters, one can get descriptive knowledge of the dynamics in the system.

  3. See Napoletano et al. (2015) for more details about the algorithm generating income shares.

  4. This is in line with the work of Caiani et al. (2016).

  5. Notice however that, in a genuine Keynesian fashion, aggregate saving falls with aggregate income following the inequality shock.

  6. In scenario III, aggregate income persistently stayed at lower levels in the high inequality case with respect to the low inequality case. Lower peak multipliers were associated with high inequality. In fact, when resources used for redistributive aims are not sufficient to significantly change low-income households’ situation, a more skewed distribution seems to act as an impediment for the recovery.


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We thank Giovanni Dosi, Davide Fiaschi, Giorgio Fagiolo, Simone D’Alessandro, Giulio Bottazzi, Federico Tamagni and Arianna Martinelli for helpful comments and discussions. We gratefully acknowledge the support by the European Union’s Horizon 2020 research and innovation programme under Grant Agreement No. 649186—ISIGrowth

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Correspondence to Mauro Napoletano.

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Palagi, E., Napoletano, M., Roventini, A. et al. Inequality, Redistributive Policies and Multiplier Dynamics in an Agent-based Model with Credit Rationing. Ital Econ J 3, 367–387 (2017).

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  • Income inequality
  • Fiscal multipliers
  • Redistributive policies
  • Credit-rationing
  • Agent-based models

JEL Classification

  • E63
  • E21
  • C63