Three Fiscal Policy Experiments in an Agent-Based Macroeconomic Model

Abstract

In this paper, I build from scratch a basic agent-based macroeconomic model, featuring fifty representative agents whose decisions to consume and save depend on the current relative performance of the economy at-large. I run three different experiments in the framework: the first, on the effects of tax and spending "flexibility" on stabilizing output, the second, on the ability of spending stimulus to stabilize output, and the third, on redistributive measures across income groups and their effects on aggregate economic performance. I find that tax and spending flexibility accelerates the path back to stability after an initial imposed downturn, that spending stimulus does much the same, though with a greater initial "kick", and that redistribution in this model may take place and increase the welfare of lower-income agents without imposing a significant burden on overall performance.