CSS SEMINAR - Chris Shin

Friday, March 7, 3:00 p.m.
Center for Social Complexity Suite
Research Hall, Third Floor

Inequality and Long Run Economic Growth

Chris Shin, PhD Student
Department of Computational Social Science
George Mason University

Traditionally in economics, marginal productivity theory insists that inequality is a necessary condition that prevails along with economic growth. However, after the growth reaches a certain point, inequality shrinks in the course of economic development.

On the contrary, recent empirical data suggests the level of inequality continues to increase even in developed countries. Given such data, some economists claim that the inequality is not a cause and consequence of the economic development but that of the failure of the political system – rent-seeking behavior.

I use an agent-based computational economics approach to test each hypothesis and generate insights about the relationship between inequality and economic growth and explore the potential effects of certain policy interventions.

I find that inequality follows an inverted “U” shape alongside the income level when a society is governed by marginal productivity theory while monotonically increases in a world governed by rent-seeking behavior. In addition, I find that taxing the rich discourages the economy yet reduces inequality – trade-off – in the former while encourages the economy and lessens inequality in the later. Nevertheless, taxation is not a long-term solution. It seems that our society needs to restore a key ingredient and belief of true capitalism for sustainable growth.