Numerical Simulation of Reaching a Steady State: Effects of Economic Rents on Development of Economic Inequality

Harashima, Taiji (2023): Numerical Simulation of Reaching a Steady State: Effects of Economic Rents on Development of Economic Inequality.

Abstract

It is not easy to numerically simulate the path to a steady state because there is no closed form solution in dynamic economic growth models in which households behave generating rational expectations. In contrast, it is easy if households are supposed to behave under the MDC (maximum degree of comfortability)-based procedure to reach a steady state where MDC indicates the state at which a household feels most comfortable with its combination of incomes and assets. In this paper, I simulate the development of economic inequality when households obtain economic rents heterogeneously and behave under the MDC-based procedure. The results of simulations indicate that if a government does not intervene, the level of economic inequality continues to increase, but if it intervenes appropriately, households can reach a stabilized (steady) state that is not approximately but “purely” optimal in the sense that they can feel they are at MDC.

• Item Type: MPRA Paper
• Language: English
• Keywords: Balanced growth path; Economic rent; Economic inequality; Government transfer; Heterogeneity; Simulation; Steady state
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C60 - General; D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E10 - General; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I30 - General

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