Income distribution, credit and fiscal policies in an agent-based Keynesian model
Working Paper #267
This work studies the relations between income distribution and monetary/fiscal policies using an credit-augmented version of the agent-based Keynesian model in Dosi et al. (2010). We model a banking sector and a monetary authority setting interest rates and credit lending conditions in a framework combining Keynesian mechanisms of demand generation, a Schumpeterian innovation-fueled process of growth and Minskian credit dynamics. We show that the model is able to account for a rich ensemble of empirical features underlying current and past recessions, including the impact of financial factors on the real economy, and the role in that of income distribution. We find that more unequal economies are exposed to more severe business cycles fluctuations, higher unemployment rates, and higher probability of crises. From a policy perspective, the model suggests that fiscal policies dampen business cycles, reduce unemployment and the likelihood of experiencing a huge crisis and, in some circumstances, also affect longterm growth. Furthermore, the more income distribution is skewed toward profits, the greater the effects of fiscal policies. Interest rates have instead a strong non-linear effect on macroeconomic dynamics. Tuning the interest rate when it is below a given threshold has no detectable effects. Conversely, increasing the interest rate when it is above that threshold yields lower and more volatile output growth, higher unemployment rates, and higher likelihood of crises.
About the Authors
Professor of Economics
Sant'Anna School of Advanced Studies of Pisa
Giovanni Dosi is Professor of Economics at the Scuola Superiore Sant'Anna in Pisa and Visiting Professor at the University of Manchester. His major research areas include economics of innovation and technological change, industrial organisation and industrial dynamics, theory of the firm and corporate governance, economic growth and development. Professor Dosi is Co-Director of the task forces on Industrial Policy and Intellectual Property Rights at the Initiative for Policy Dialogue, Columbia University, New York; Continental Europen Editor of Industrial and Corporate Change, Research consultant for Italian and international public and private institutions, and Honorary Research Professor at the University of Sussex.
University of Verona
Andrea Roventini is assistant professor at the University of Verona (Italy). He is an affiliated research fellow of the Laboratory of Economics and Management at the Sant'Anna School of Advanced Studies in Pisa (Italy) and of the OFCE (French Economic Observatory, Sciences Po) in Paris and Sophia-Antipolis (France).
He holds a bachelor's degree in economics from the University of Modena and Reggio Emilia (Italy) and a Ph.D. in economics from the Sant'Anna School of Advanced Studies.
His major research areas include agent-based computational economics, business cycles, applied macroeconometrics, and the statistical properties of micro- and macro-economic dynamics. His papers have been published in Journal of Applied Econometrics, Journal of Economics Dynamics and Control, Journal of Evolutionary Economics, Computational economics, European Physical Journal B, and Cybernetics and Systems.
Associate Professor of Economics
Laboratory of Economics and Management
Sant’Anna School of Advanced Studies
I am Associate Professor of Economics at the Laboratory of Economics and Management, Sant’Anna School of Advanced Studies. My research interests include agent-based computational economics; empirics and theory of economic networks; and the statistical properties of microeconomic and macroeconomic dynamics.
My papers have been published in the following journals:
Science, Journal of Economic Geography, Journal of Applied Econometrics, Journal of Economics Dynamics and Control, Computational Economics, Physical Review E, Journal of Economic Behavior and Organization, Industrial and Corporate Change, Advances in Complex Systems, Journal of Evolutionary Economics, European Physical Journal B, Journal of Economic Interaction and Coordination, Empirical Economics.
Department for Research on Innovation and Competition
Observatoire Français des Conjonctures Economiques