Inequality and Growth: Understanding the Link through a Simulation

Abstract

As suggested in the literature, economic growth and inequality may be influenced by common determinants. One set of determinants may be stochastic production shocks, and in particular non-neutral shocks. To communicate this idea to undergraduate students, I present a model in which shocks to the capital stock introduce both growth and inequality. To engage students and reinforce the empirical consequences of this relationship, I employ an online simulation which implements the model. Representative simulation results are presented and discussed herein.