System Structure of Agent-Based Model Responsible for Reproducing Business Cycles and the Effect of Tax Reduction on GDP
2.3 Outline of Agent ’ s Decision-Making Rules
2.3.1 Behavioral rules of consumers
Consumers create a budget for consumption E b
t
. This budget is calculated by adding after-tax income I t ( 1-r i _ tax
) , which represents the Keynesian consumption function ( Keynes , 1936 ), to the money withdrawn from the deposit described as their bank deposit D t multiplied by a withdrawal ratio r wd at each fiscal period t . The formula for the budget is shown in Equation ( 1 ). Here , r i _ tax is the income tax rate , a is the consumer ’ s autonomous consumption , and b is the marginal propensity to consume as per the Keynesian consumption function . The withdrawal ratio r wd is selected randomly for each agent during each period .
E bt
= a + bI t ( 1-r i _ tax )+ r wdt
D t ( 1 )
When purchasing products in the consumer market , consumers select goods based on their utility and affordability ( as determined by the utility function for each class of products and the agent ’ s budget constraint , respectively ). Moreover , when a stock market is included in the model as an experimental level to analyze the reproducibility of business cycles , consumers buy or sell stocks aiming to increase their financial assets . Takashima et al . ( 2014 ) described consumers ’ action rules in the stock market in detail .
2.3.2 Behavioral rules of producers
The retailers and raw material producers both decide the quantity and price of their product at the beginning of each period . The price of each product is increased or decreased depending on the number of goods they held in stock at the end of previous period . The quantity to be produced is decided in such a way that the probability of being out of stock must be less than 5 %; this is estimated based on total sales from the last ten periods .
The production capacity Y is defined by the Cobb-Douglas function ( as shown in Equation ( 2 )), where K is the number of units of capital equipment , L is the number of employees , and α is assumed to be 0.25 . Besides , A is a bounded proportionality constant representing the total factor productivity that is randomly assigned being assumed to be unique to each producer i .
Y i
( K , L )= A i K α L 1-α ( 2 )
Retailers and raw material producers initially have one unit of equipment and a specified number of employees . They will invest to increase their production capacity when their products produced at maximum production capacity continued to be sold out during a specified number of periods . When the model includes the labor market as an experimental level , they have two choices for performing investment : buying a piece of equipment from the equipment manufacturer or employing a new worker from the labor market , depending on the financial merit .
When investing in equipment , they may finance the funds by either borrowing from the bank , issuing new
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