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On the Possibility of Dynamic Optimization of Output by Changing the Level of Income Inequality

Author

Listed:
  • AKAEV, Askar A.

    (Lomonosov Moscow State University)

  • SARYGULOV, Askar I.

    () (Saint Petersburg State University of Architecture and Civil Engineering)

  • SOKOLOV, Valentin N.

    (Saint Petersburg State University of Economics)

Abstract

Many experts believe that the main causes of the economic crisis of 2007–2009 were the structural and financial imbalances of the world’s leading economies as well as the lack of breakthrough technologies that could be used on an industrial scale. Almost ten years after the beginning of the crisis, we can state that only now new technological solutions have emerged (NBIC technologies, Industry 4.0, the Internet of things, industrial systems using elements of artificial intelligence) that can give new impetus to the development of the world economy. However, the dynamics of economic development of many industrialized countries can significantly slow down if the problems of the accelerating income gap between the most and the least well-off strata of the population are not solved. In this paper it is shown that exceeding the critical thresholds of inequality indicators (Gini index) leads to significant slowdowns in economic growth rates. Calculations carried out on the basis of production and institutional functions for industrialized countries show that the GDP losses associated with the actual values of the inequality indices exceeding their optimal values range from 0.5 to 1.9 percent. The Gini index values below their optimal values also lead to GDP losses, for example for Scandinavian countries such losses range from 0.6 to 3.7 percent. Dynamic optimization of GDP output has a significant effect, substantially increasing the potential volumes of its production.

Suggested Citation

  • AKAEV, Askar A. & SARYGULOV, Askar I. & SOKOLOV, Valentin N., 2017. "On the Possibility of Dynamic Optimization of Output by Changing the Level of Income Inequality," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 8-23, December.
  • Handle: RePEc:rnp:ecopol:ep1760
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    References listed on IDEAS

    as
    1. Cornia, Giovanni Andrea (ed.), 2004. "Inequality, Growth, and Poverty in an Era of Liberalization and Globalization," OUP Catalogue, Oxford University Press, number 9780199271412.
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    Keywords

    economic growth; inequality; production–institutional functions; dynamic optimization.;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

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