System Structure of Agent-Based Model Responsible for Reproducing Business Cycles and the Effect of Tax Reduction on GDP
Figure 10 . Influence of the labor market on the relationship between corporate tax rate and GDP , under the condition that includes all four factors , namely , government inefficiency , executive compensation , the use of internal funds , and the mitigation of credit rationing ( i . e ., the upper limit of the number of loans is assumed to be 3 ).
flowing out to the market . Funds that flow out from the bank to the market increase someone ’ s income , increasing consumption , thus increasing GDP . The substantial marginal propensity to consume by the private sector is the ratio of the funds flowing out to the market ( e . g ., in the form of firms ’ investments as well as executives ’ consumptions ) to the total amount of firms ’ surplus funds increased by the tax reduction .
The efficiency of government expenditure , on the other hand , is considered to be a substantial marginal propensity to consume by the public sector .
Therefore , the positive effect of corporate tax reduction is realized when the substantial marginal propensity to consume by the private sector ( including both firms and consumers ) is greater than that of the public sector . In addition , the four factors mentioned above are collectively required to reproduce the positive effect of corporate tax reduction , because the marginal propensity to consume in the private sector could be larger than that in the public sector only when all of four factors exist in both the model system and the real system .
This finding suggests the following :
First , when input conditions of the ABM model are expressed by the model structure , it is possible to discover which conditions in the system structure are necessary to reproduce specific macro behavior , using a series of systematic computer experiments . By considering why those factors are required to reproduce the phenomenon , we can gain a better understanding of the underlying mechanisms of the social phenomenon .
Second , corporate tax reduction increases GDP only when the government ’ s effective marginal propensity to consume ( expressed by the degree of efficiency [ i . e ., 1-inefficiency ] of government expenditure ) is smaller than that
55