Can Rising Consumption Deepen Inequality?

TL;DR

This paper investigates how rising consumption influences wealth inequality by extending an agent-based economic model, examining robustness under various transaction dynamics and endogenous wages.

Contribution

It extends the Social Architecture of Capitalism model to include heterogeneous transaction frequencies, limits, and endogenous wages, analyzing their effects on inequality.

Findings

Dependence of inequality on the key parameter R remains robust under model extensions.

Transaction frequency and limits influence detailed wealth distribution patterns.

Endogenous wages can either stabilize or amplify inequality depending on macroeconomic conditions.

Abstract

The impact of rising consumption on wealth inequality remains an open question. Here we revisit and extend the Social Architecture of Capitalism agent-based model proposed by Ian Wright, which reproduces stylized facts of wealth and income distributions. In a previous study, we demonstrated that the macroscopic behavior of the model is predominantly governed by a single dimensionless parameter, the ratio between average wealth per capita and mean salary, denoted by R. The shape of the wealth distribution, the emergence of a two-class structure, and the level of inequality - summarized by the Gini index - were found to depend mainly on R, with inequality increasing as R increases. In the present work, we examine the robustness of this result by relaxing some simplifying assumptions of the model. We first allow transactions such as purchases, salary payments, and revenue collections to occur with different frequencies, reflecting the heterogeneous temporal dynamics of real economies. We then impose limits on the maximum fractions of wealth that agents can spend or collect at each step, constraining the amplitude of individual transactions. We find that the dependence of the inequality on R remains qualitatively robust, although the detailed distribution patterns are affected by relative frequencies and transaction limits. Finally, we analyze a further variant of the model with adaptive wages emerging endogenously from the dynamics, showing that self-organized labor-market feedback can either stabilize or amplify inequality depending on macroeconomic conditions.