Numerical Simulations of How Economic Inequality Increases in Democratic Countries

Taiji Harashima

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Democracy; Economic rent; Economic inequality; Government transfer; Heterogeneity; Simulation (search for similar items in EconPapers)
JEL-codes: E17 E60 E63 H2 (search for similar items in EconPapers)
Date: 2023-09-27
New Economics Papers: this item is included in nep-cmp
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Citations: View citations in EconPapers (1)

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