Pension Generosity and Wealth Inequality Dynamics: An Agent-Based Analysis

These files are necessary to replicate the results of the following article: "Pension Generosity and Wealth Inequality Dynamics: An Agent-Based Analysis."

Authors:

• Łukasz Goczek, PhD - Email: lgoczek@wne.uw.edu.pl, address: Faculty of Economic Sciences, University of Warsaw, Poland, Długa 44/50, Warsaw 00-241, Poland.
• Ivan Skliarov, MA - Email: i.skliarov@student.uw.edu.pl, address: Faculty of Economic Sciences, University of Warsaw, Poland, Długa 44/50, Warsaw 00-241, Poland.

The list of files:

1. svSim.jar - the installation file of the agent-based model used in the article. The model must be installed on your computer before the next two files can be used. The model was built using Repast Simphony (Repast Suite Documentation);
2. analysis.r - the R script allowing to conveniently simulate the svSim model and reproduce all the procedures presented in the article (CRAN: Package rrepast (r-project.org));
3. functions.r - the R script containing several custom functions used in analysis.r.

Abstract

This article attempts to shed more light on how intergenerational income redistribution affects wealth inequality and how behavioral differences between people influence the effectiveness of this process. To this end, we built an agent-based model populated by independent agents that can work, consume, and save by reacting to changes in pension generosity. We considered two populations while conducting policy experiments: individuals, agents with unique values of productivity, discounting rate, and interest rate sensitivity, and clones, perfectly identical agents. Our model predicts that higher pension generosity increases GDP, reduces unemployment, and dampens income inequality (gross and net). Although this policy discourages retirement saving, wealth inequality decreases because more agents have opportunities to save as unemployment drops – moreover, the heterogeneity of agents’ attitudes to saving influences the effectiveness of fiscal policies. The more generous pensions become, the lower the average increase in GDP is in the population of clones. Additionally, this policy will reduce income inequality before and after taxes more than in the heterogenous population. However, it will be less effective in reducing wealth inequality and unemployment. Finally, the model predicts that the lack of differences between agents increases uncertainty about redistribution outcomes.