Inequality and the Financial Accumulation Process: A Computational Economic Analysis of Income and Wealth Dynamics
Applied Economics Lunch Seminar, Paris School of Economics (PSE), Paris, 2 June 2015.
The 20th Annual Workshop on the Economic Science with Heterogeneous Interacting Agents (WEHIA 2015), Sophia Antipolis (France), 21-23 May, 2015.
63 Pages Posted: 30 Jan 2015 Last revised: 18 Jul 2015
Date Written: January 29, 2015
Our computational economic analysis investigates the relationship between inequality and the financial accumulation process in the study of income and wealth distributions. Extending the baseline model by Levy et al., we characterise the economic process trough featured return structures generating alternative stylised evolutions of income and wealth through historical time. First we explore the limited heuristic contribution of one and two factors models comprising one single stock (capital wealth) and one single flow factor (labour) as pure drivers of income and wealth generation and allocation over time. Then we introduce heuristic models of taxation and financial market pricing in line with the baseline approach. Our computational economic analysis corroborates that the financial accumulation process featuring compound returns plays a significant role as socioeconomic source of inequality, while institutional configurations play a significant role in framing and shaping the aggregate economic process that evolves over socioeconomic space and time.
An updated version is available at: http://ssrn.com/abstract=2628536
Keywords: inequality, economic process, compound interest, simple interest, market pricing, minimal institution, computational economics, econophysics
JEL Classification: C46, C63, D31, E02, E21, E27, D63, H22
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