Income distribution and income shares: wealth and income distributions explained using generalised Lotka-Volterra SFC ABM models

Geoff Willis

International Review of Applied Economics, 2015, vol. 29, issue 6, 816-842

Abstract: This paper combines a classical approach to economics with standard finance theory in a Lotka-Volterra framework. The models are agent-based, general Lotka-Volterra (GLV) models, using very simple homogeneous or heterogeneous agents. The agents are owners of capital, they receive wages and returns on their capital, and spend a portion of their wealth on consumption. As such the models use realistic economic variables. The models give simple outputs of 'log-normal'-like bodies and power tail distributions for both wealth and income. These distributions match those seen in real economies. The models are unique in giving real world distributions from a statistical mechanical model that uses absolutely identical agents. The models demonstrate that wealth and income inequality is driven by the economic force of concentration of capital through a statistical-mechanical wealth condensation process. The models also show a direct relationship between the macroeconomic labour share of income and the distributions of personal wealth and income. In addition, the models give a proposed 'compulsory saving' regime that appears highly effective for the reduction of poverty.

Date: 2015
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DOI: 10.1080/02692171.2015.1065225

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