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

Taiji Harashima

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Balanced growth path; Economic rent; Economic inequality; Government transfer; Heterogeneity; Simulation; Steady state (search for similar items in EconPapers)
JEL-codes: C60 D63 E10 H30 I30 (search for similar items in EconPapers)
Date: 2023-04-27
New Economics Papers: this item is included in nep-des and nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:117137

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