A system dynamic macroeconomic model for an inquiry of income inequality and environmental impact

Abstract

Ending hunger, reducing poverty and inequalities, and climate action are the main ob jectives of the political agenda in the recent years. However, these objectives may be in conflict. Economic growth is promoted to end hunger and reduce poverty; however, a growing economy may well increase human impact on the environment. It is also true that an income redistribution scheme may increase aggregate demand—hence, the economic activity and subsequently the environmental impact. In this thesis, we build a system dynamic macroeconomic model to cope with the intricate relationships among income distribution, economic growth, and human impact on the environment. The model is based on macroeconomic accounting principles, and represents a closed economy with a representative firm, three heterogeneous households, and a simple banking sector. We argue that anaggressive income redistribution scheme canachieve the whole objectives in the policy agenda, while a mild redistribution scheme may worsen the environmental problems. This thesis contributes to the recent Ecological Macroeconomicsliteraturebyexaminingtherelationshipbetweenincomedistribution and environmental impact of the human activity by relying on a system dynamics ap proach.