System Dynamics | SIGMA
Savings, Inequality and Growth in a Macroeconomic framework
The SIGMA model is constructed to describe a closed economy with four financial sectors: business, government and two distinct household sectors.
Study | Does slow growth increase inequality?
The SIGMA model explores the hypothesis that slow growth rates lead to rising inequality. This case has been made most notably by French economist, Thomas Piketty. If true, this would pose serious challenges to the project of achieving Prosperity without Growth or meeting the ambitions of those who call for an intentional slowing down of growth on ecological grounds.
To test the hypothesis, Tim Jackson and Peter Victor developed a simple four-sector, demand-driven model of Savings, Inequality and Growth in a MAcroeconomic framework (SIGMA) with exogenous growth and net savings rates. They then used SIGMA to explore the evolution of inequality in the context of declining economic growth.
Contrary to the general hypothesis, Tim and Peter find that inequality does not necessarily increase as growth slows down. In fact, there are certain conditions under which inequality can be ameliorated significantly, or even entirely eliminated, as growth declines.
The results are described in the PASSAGE working paper 15/03 ‘Does slow growth lead to rising inequality?’. The paper also discusses the implications of the findings for questions of employment, government policy and the politics of de-growth. An updated version of the research has been published in the journal Ecological Economics.
Interested readers can explore the implications for themselves in the online beta version of SIGMA.
Jackson, T and P Victor 2018: Confronting inequality in a post-growth world – basic income, factor substitution and the future of work. CUSP Working Paper No 11. Guildford: University of Surrey.
Jackson, T and P Victor 2016. Does slow growth lead to rising inequality? Some theoretical reflections and numerical simulations. Ecological Economics, Vol 121, pp. 206–219.
Jackson, T, Victor, P and A Asjad Naqvi 2016.Towards a Stock – Flow Consistent Ecological Macroeconomics. WWW for Europe: Work Package 205, Milestone 40 “Report on model results including additional policies to counter averse effects”. Working Paper no 114.
Jackson, T and P Victor 2015. Does slow growth lead to rising inequality? – A stock-flow consistent exploration of the ‘Piketty hypothesis’.PASSAGE Working Paper 15/03.