This research aims to explore whether the relationship between economic policies, income distribution and economic activity depends on the economic structure (transmission mechanisms and social structure). The motivation for this research is that the recent Brazilian experience of economic growth with income distribution seems to suggest that the possibility of successfully combining both features depends on the combination of economic policies and the specific economic context. The selected economic policies are minimum wage adjustment rules, unemployment benefits, monetary policy rules and taxation policy. The main hypothesis is that, because each policy instrument tends to alter the income distribution in favor of certain groups and affect other macroeconomic variables differently, different combinations of economic policies will be more or less appropriate to combining economic growth with income distribution in different economic structures. In order to test this hypothesis, an agent-based model for an open economy will be developed and simulated. The importance of considering an open economy is that the exchange rate is considered to be an important determinant of the income distribution. This research aims to contribute to the understanding of the relationship between economic growth and income distribution from a new perspective. The literature review indicates that income distribution is a relevant research topic in agent-based models, but the proposed approach to the topic has not yet been undertaken, so this research can contribute to the existing literature by analyzing the topic from a new perspective, as well as by modeling an external sector and a more detailed labor market and analyzing the personal income distribution through different indexes. The results from this research may also help to assess the design of public policies that aim at conciliating income distribution with economic growth by highlighting which channels are expected to be stronger in specific contexts.
News published in Agência FAPESP Newsletter about the scholarship: