Fiscal Policy with Heterogeneous Agents, Banks and Financial Frictions

29 Pages Posted: 19 Apr 2016

See all articles by Panagiotis Asimakopoulos

Panagiotis Asimakopoulos

Loughborough University - School of Business and Economics; University of Piraeus

Stylianos Asimakopoulos

University of Bath

Date Written: April 13, 2016

Abstract

We assess the role of banks to the transmission of fiscal policy reforms to the economy. We built-up a dynamic stochastic general equilibrium model with heterogeneous agents, banks and government. We find that banks mitigate the negative spillover effects to the economy from higher taxes. Specifically, housing taxes exhibit negative effects to the economy in the short-run and positive in the long-run, if they are welfare enhancing. Borrowers are affected the most from higher housing taxes. The existence of banks benefits impatient households from higher consumption taxes, whereas higher housing tax, targeted on patient households and entrepreneurs, decreases agents' welfare.

Keywords: fiscal policy, heterogeneous agents, financial frictions

JEL Classification: E21, E44, E47, E62, H24

Suggested Citation

Asimakopoulos, Panagiotis and Asimakopoulos, Stylianos, Fiscal Policy with Heterogeneous Agents, Banks and Financial Frictions (April 13, 2016). Available at SSRN: https://ssrn.com/abstract=2766274 or http://dx.doi.org/10.2139/ssrn.2766274

Panagiotis Asimakopoulos

Loughborough University - School of Business and Economics ( email )

Epinal Way
Leics LE11 3TU
Leicestershire
United Kingdom

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

Stylianos Asimakopoulos (Contact Author)

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

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