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

Taiji Harashima

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Economic rents; Government intervention; Inequality; Simulation: Temporary rent (search for similar items in EconPapers)
JEL-codes: C53 C63 D63 E17 I30 (search for similar items in EconPapers)
Date: 2025-02-06
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