Welfare-improving Government Behaviour and Inequality - Inspection Using a Heterogeneous-agent Model

Governments behavior is expected to be non-neutral in terms of impacts on both welfare and inequality. In spite of their multivariate form, a tentative assessment of such inequality impacts can be provided by using a general equilibrium model with heterogeneous-agents and where wealth and income distribution is determined endogenously. Using a model capable of exploring the relationship between fiscal policy variables and the endogenous cross-section distribution of income, wealth, consumption and leisure, this paper produces a welfare and inequality analysis of several equilibriums resulting from different combinations of debt levels and of government budget variables. Moreover, such assessment is based on the empirical reality of the EU countries.