Numerical Simulation of Economic Inequality Widened by the Persistent Effects of Temporary Rent Income

Harashima, Taiji (2025): Numerical Simulation of Economic Inequality Widened by the Persistent Effects of Temporary Rent Income.

Abstract

There has been a deep-rooted view that economic rents are the main cause of high levels of economic inequality, but if economic rents are temporary, they may not be the cause. By employing numerical simulations, I show that even if economic rents are temporary, they can generate a high level of economic inequality that persists over a long period. Temporary economic rent incomes have two properties that can generate a high level of persistent economic inequality: (1) they follow a random walk process and (2) they gradually decrease. The numerical simulations employed use (1) a simulation method created on the basis of the concept of maximum degree of comfortability and (2) a newly created method that focuses only on the property of gradual decreases. The results show that these properties can increase economic inequality persistently and eventually generates extreme economic inequality. The origin of this temporary rent driven economic inequality is heterogeneity in the timings of obtaining randomly given temporary rent incomes among households. The simulation results strongly suggest that a government should intervene to restrain economic inequality from considerably widening even if rent incomes are only temporary.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic rents; Government intervention; Inequality; Simulation: Temporary rent
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E17 - Forecasting and Simulation: Models and Applications; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I30 - General

References

Atkinson, Anthony B., Thomas Piketty and Emmanuel Saez (2011) “Top Incomes in the Long Run of History,” Journal of Economic Literature, Vol. 49, No. 1, pp. 3-71.

Autor, David H., Lawrence F. Katz and Alan B. Krueger (1998) “Computing Inequality: Have Computers Changed the Labor Market?” The Quarterly Journal of Economics, Vol. 113, No. 4, pp. 1169-1213

Autor, David H., Frank Levy and Richard J. Murnane (2003) “The Skill Content of Recent Technological Change: An Empirical Exploration,” The Quarterly Journal of Economics, Vol. 118, No. 4, pp. 1279-1333.

Becker, Robert A. (1980) “On the Long-run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households,” The Quarterly Journal of Economics, Vol. 95, No. 2, pp. 375–382.

Boix, Carles (2010) “Origins and Persistence of Economic Inequality,” Annual Review of Political Science, Vol. 13, pp. 489-516.

Card, David and John E. DiNardo (2002) “Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles,” Journal of Labor Economics, Vol. 20, No. 4, pp. 733- 783　

Goldberg, Pinelopi Koujianou and Nina Pavcnik (2007) “Distributional Effects of Globalization in Developing Countries,” Journal of Economic Literature, Vol. 45, No. 1, pp. 39-82.

Harashima, Taiji (2010) “Sustainable Heterogeneity: Inequality, Growth, and Social Welfare in a Heterogeneous Population,” MPRA (The Munich Personal RePEc Archive) Paper No. 24233.

Harashima, Taiji (2012) “Sustainable Heterogeneity as the Unique Socially Optimal Allocation for Almost All Social Welfare Functions,” MPRA (The Munich Personal RePEc Archive) Paper No. 40938.

Harashima, Taiji (2014) “Sustainable Heterogeneity in Exogenous Growth Models: The Socially Optimal Distribution by Government’s Intervention,” Theoretical and Practical Research in Economic Fields, Vol. 5, No. 1, pp. 73-100.

Harashima, Taiji (2016) “Ranking Value and Preference: A Model of Superstardom,” MPRA (The Munich Personal RePEc Archive) Paper No. 74626.

Harashima, Taiji (2017a) “The Mechanism behind Product Differentiation: An Economic Model” Journal of Advanced Research in Management, Vol. 8, No. 2. pp. 95-111.

Harashima, Taiji (2017b) “Sustainable Heterogeneity: Inequality, Growth, and Social Welfare in a Heterogeneous Population,” in Japanese, Journal of Kanazawa Seiryo University, Vol. 51, No.1, pp. 31-80. （原嶋　耐治「持続可能な非均質性―均質ではない構成員からなる経済における不平等、経済成長及び社会的厚生―」 『金沢星稜大学論集』 第51巻第1号31～80頁）

Harashima, Taiji (2018a) “Do Households Actually Generate Rational Expectations? “Invisible Hand” for Steady State,” MPRA (The Munich Personal RePEc Archive) Paper No. 88822.

Harashima, Taiji (2018b) “Ranking Value and Preference: A Model of Superstardom,” in Japanese, Journal of Kanazawa Seiryo University, Vol. 52, No.1, pp. 27-40. （「順位価値と順位選好―スーパースターの経済モデル―」『金沢星稜大学論集』第52巻第1号27～40頁）

Harashima, Taiji (2018c) “Superstars in Team Sports: An Economic Model,” MPRA (The Munich Personal RePEc Archive) Paper No. 86360.

Harashima, Taiji (2018d) “Why Is Executive Compensation So High? A Model of Executive Compensation” Journal of Advanced Research in Management, Vol. 9, No. 2. pp. 59-68.

Harashima, Taiji (2019) “Do Households Actually Generate Rational Expectations? “Invisible Hand” for Steady State,” in Japanese, Journal of Kanazawa Seiryo University, Vol. 52, No. 2, pp. 49-70. （「家計は現実に合理的期待を形成して行動しているか—定常状態への「見えざる手」—」、『金沢星稜大学論集』第52巻第2号49～70頁）

Harashima, Taiji (2020a) “Economic Inequality Exacerbated by Economic Rents from Exploitative Contracting,” MPRA (The Munich Personal RePEc Archive) Paper No. 104178.

Harashima, Taiji (2020b) “Sustainable Heterogeneity as the Unique Socially Optimal Allocation for Almost All Social Welfare Functions,” in Japanese, Journal of Kanazawa Seiryo University, Vol. 54, No.1, pp. 71-95. （「殆ど全ての社会的厚生関数に対して唯一の社会的に最適な配分をもたらすものとしての持続可能な非均質性」『金沢星稜大学論集』第54巻第1号71～95頁）

Harashima, Taiji (2020c) “Preventing Widening Inequality: Economic Rents and Sustainable Heterogeneity,” MPRA (The Munich Personal RePEc Archive) Paper No. 103377.

Harashima, Taiji (2020d) “An Alternative Rationale for the Necessity of an Inheritance Tax,” MPRA (The Munich Personal RePEc Archive) Paper No. 100015.

Harashima, Taiji (2020e) “Rethinking the Ability-to-Pay and Equal Sacrifice Principles of Taxation: An Alternative Rationale for a Progressive Income Tax,” MPRA (The Munich Personal RePEc Archive) Paper No. 102937.

Harashima, Taiji (2021a) “Consequence of Heterogeneous Economic Rents under the MDC-based Procedure,” Journal of Applied Economic Sciences, Vol. 16, No. 2. pp. 185-190.

Harashima, Taiji (2021b) “Superstars in Team Sports: An Economic Model,” in Japanese, Journal of Kanazawa Seiryo University, Vol. 55, No.1, pp. 39-51. （「チームスポーツにおけるスーパースターの経済モデル」『金沢星稜大学論集』第55巻第1号39～51頁）

Harashima, Taiji (2021c) “Mechanisms that Make Economic Inequality Increase in Democratic Countries,” MPRA (The Munich Personal RePEc Archive) Paper No. 108535.

Harashima, Taiji (2021d) “Preventing Widening Inequality: Economic Rents and Sustainable Heterogeneity,” in Japanese, Journal of Kanazawa Seiryo University, Vol. 55, No.1, pp. 17-37. (「格差拡大を防ぐー経済レントと持続可能な非均質性」『金沢星稜大学論集』第55巻第1号17～37頁)

Harashima, Taiji (2022a) “A Theory of Inflation: The Law of Motion for Inflation under the MDC-based Procedure,” MPRA (The Munich Personal RePEc Archive) Paper No. 113161.

Harashima, Taiji (2022b) “A Theory of Inflation: The Law of Motion for Inflation under the MDC-based Procedure,” in Japanese, Journal of Kanazawa Seiryo University, Vol. 54, No.1. pp. 17～37. （「物価上昇に関する一理論：最快適状態依拠手順の下における物価の運動法則」『金沢星稜大学論集』第56巻第1号17～37頁）

Harashima, Taiji (2022c) “Numerical Simulations of Reaching a Steady State: No Need to Generate Any Rational Expectations,” Journal of Applied Economic Sciences, Vol. 17, No. 4. pp. 321-339. Harashima, Taiji (2023a) “Numerical Simulation of Reaching a Steady State: Effects of Economic Rents on Development of Economic Inequality,” MPRA (The Munich Personal RePEc Archive) Paper No. 117137.

Harashima, Taiji (2023b)“Numerical Simulations of How Economic Inequality Increases in Democratic Countries,” Journal of Applied Economic Sciences, Vol. 18, No. 3, pp. 222 – 247.

Harashima, Taiji (2023c)“Economic Rents Extracted in the Process of Consumption,” MPRA (The Munich Personal RePEc Archive) Paper No. 119012.

Harashima, Taiji (2023d) “Economic Inequality Exacerbated by Economic Rents from Exploitative Contracting,” in Japanese, Journal of Kanazawa Seiryo University, Vol. , No. 57, pp. 41 - 57. （「搾取的契約からの経済レントが悪化させる経済的不平等」『金沢星稜大学論集』第57巻第1号41～57頁）

Harashima, Taiji (2024a) “Numerical Simulation of an Endogenously Growing Economy and Its Balanced Growth Path,” MPRA (The Munich Personal RePEc Archive) Paper No. 119391.

Harashima, Taiji (2024b) “Numerical Simulation of Economic Depression,” MPRA (The Munich Personal RePEc Archive) Paper No. 120508.

Helpman, Elhanan (2016) “Globalization and Wage Inequality,” NBER Working Paper, No. 22944. Katz, Lawrence F. and Kevin M. Murphy (1992) “Changes in Relative Wages, 1963-1987: Supply and Demand Factors,” The Quarterly Journal of Economics, Vol. 107, No. 1, pp. 35-78.

Kuznets, Simon (1955) “Economic Growth and Income Inequality,” The American Economic Review, Vol. 45, No. 1, pp. 1-28

Leamer, Edward E. (1998) “In Search of Stolper-Samuelson Linkages between International Trade and Lower Wages,” in Imports, Exports, and the American Worker, Susan M. Collins (ed), Brookings Institution Press, Washington, D.C.

Milanovic, Branko (2016) Global Inequality: A New Approach for the Age of Globalization, The Belknap Press of Harvard University Press, Cambridge, MA.

Parker, Nicholas (2014) “Divergence: Wealth and Income Inequality in the United States,” EconSouth, Federal Reserve Bank of Atlanta, Vol. 16, No. 3.

Piketty, Thomas (2003), “Income Inequality in France, 1901–1998,” Journal of Political Economy, Vol. 111, No. 5, pp. 1004-1042.

Piketty, Thomas (2013) Le Capital au XXIe siècle translated by Arthur Goldhammer in English in 2014 with the title Capital in the twenty-First Century Capital in the Twenty-First Century, Belknap Press of Harvard University Press, Cambridge, MA.

Piketty, Thomas and Emmanuel Saez (2003) “Income Inequality in the United States, 1913–1998,” The Quarterly Journal of Economics, Vol. 118, No. 1, pp. 1-41. Saez, Emmanuel and Gabriel Zucman (2016) “Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data,” The Quarterly Journal of Economics, Vol. 131, No. 2, pp. 519-578.

Stiglitz, Joseph E. (2015a) “New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part I. The Wealth Residual,” NBER Working paper, No. 21189.

Stiglitz, Joseph E. (2015b) “New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part II: Equilibrium Wealth Distributions,” NBER Working paper, No. 21190.

Stiglitz, Joseph E. (2015c) “Inequality and Economic Growth,” The Political Quarterly, Vol. 86, No. S1, pp. 134-155.

Stiglitz, Joseph E. (2015d) “The Origins of Inequality, and Policies to Contain It,” National Tax Journal, 2015, Vol. 68, No. 2, pp. 425–448.