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Numerical Simulations of How Economic Inequality Increases in Democratic Countries

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  • Harashima, Taiji

Abstract

It is not easy to perform a numerical simulation of the path to a steady state in dynamic economic growth models in which households behave by generating rational expectations. It is much easier, however, if households are assumed to behave according to a procedure based on the maximum degree of comfortability (MDC), where MDC indicates the state at which a household feels most comfortable with its combination of income and assets. In this paper, I simulate how economic inequality increases in democratic countries under the supposition that households behave according to the MDC-based procedure. The results indicate that high levels of economic inequality can be generated and even increase in a democracy. As causes, I postulate households’ misunderstandings of the economic situation, a government against certain groups in the economy, or an upward trend in temporary rent incomes. I then present a criterion for establishing the socially acceptable level of economic inequality and point out a practical shortfall arising from the inability to distinguish temporary economic rents.

Suggested Citation

  • Harashima, Taiji, 2023. "Numerical Simulations of How Economic Inequality Increases in Democratic Countries," MPRA Paper 118710, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:118710
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    File URL: https://mpra.ub.uni-muenchen.de/118710/1/MPRA_paper_118710.pdf
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    References listed on IDEAS

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    Cited by:

    1. Harashima, Taiji, 2024. "Macroeconomics Is Still Useful and Necessary: A Mechanism to Explain the Condition when Strict Convexity is Unsatisfied," MPRA Paper 121168, University Library of Munich, Germany.

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    More about this item

    Keywords

    Democracy; Economic rent; Economic inequality; Government transfer; Heterogeneity; Simulation;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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