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Journal of Evolutionary Economics

, Volume 29, Issue 1, pp 177–228 | Cite as

Does inequality hamper innovation and growth? An AB-SFC analysis

  • Alessandro CaianiEmail author
  • Alberto Russo
  • Mauro Gallegati
Regular Article

Abstract

We propose to analyze the relationship between inequality and economic development by means of an Agent Based-Stock Flow Consistent model where workers have been differentiated into four classes competing on segmented labor markets, and where firms’ demand for each type of worker is affected by their hierarchical organization. In order to account for the impact of income and wealth distribution on consumption patterns, worker classes have diversified average propensities to consume and save. Finally, firms in the capital sector invest in R&D, thus possibly coming to produce more productive vintages of machineries, which affect the evolution of labor productivity in the consumption sector. The model is calibrated using realistic values for the income and wealth distribution across different income groups and their average propensities to consume. Results of the simulation experiments suggest that more progressive tax schemes and measures that sustain the dynamics of wages of low and middle level workers concur to foster economic development and to reduce inequality. However, the latter seem to be more effective under both respects. Therefore, the model results are broadly in line with the literature suggesting the prevalence of wage-led growth regimes in closed economic systems. In the conclusions we discuss current limitations and future development of the present research.

Keywords

Innovation Inequality Agent based macroeconomics Stock flow consistent models 

JEL Classification

C63 D31 E30 E25 H23 

Notes

Funding

This research has benefited from funding of the Institute for New Economic Thinking (INET) and from the European 7th Framework Program under the project “Mathematics of Multilevel Anticipatory Complex Systems (MatheMACS)’, Project Reference: 318723.

Compliance with Ethical Standards

Conflict of interests

The authors declare that they have no conflict of interest.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.University of PaviaPaviaItaly
  2. 2.Marche Polytechnic UniversityAnconaItaly

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