PRECAUTIONARY SAVING, INEQUALITY AND FISCAL POLICY: A HANK MODEL

We construct a Hank model with unemployment risk to study the effects of fiscal policies on reducing inequality in Chinese residents and find that: (1) Due to savings decisions and liquidity constraints, the increase in inequality will increase the total savings rate, which is not conducive to economic transformation. (2) The impact of income tax on inequality depends on its progressivity degree. Reducing proportional tax can improve inequality, and general transfer payments have no significant effect on improving inequality. However, increasing unemployment and poverty subsidies can reduce inequality, increase the consumption of residents with a high MPC and achieve a balance between fairness and efficiency. (3) The effect of monetary policy depends on the response of fiscal policy, and the improvement of inequality is conducive to smoothing the transmission mechanism of monetary policy and stimulating consumption. In terms of algorithms, we also propose a hybrid algorithm combining projection and perturbation algorithms for heterogeneous agent models.