Estimation of optimal level of income differentiation using production-institutional functions
Abstract
The article is devoted to the definition of optimal level of income differentiation in maximizing economic effect on the basis of production-institutional functions and constraints which should satisfy the function parameters.
The researches which use apparatus of production-institutional functions for influence analysis of institutional orientation factors on the economic system production capabilities are analyzed. In particular, examples of functions use for fiscal analysis, as well as for determining optimal value of inequality in income distribution where the Gini coefficient is considered an institutional factor. In this case the problem has been complicated by parameters’ constraints that were determined according to their economic interpretation. To solve the nonlinear optimization problem with constraints, two methods have been chosen: the MathCAD and a special algorithm implemented in MS Excel. For approbation of the model statistics of different time periods the European countries have been used: Austria, Belgium, Greece, Denmark (2001-2015), Great Britain, Germany, Latvia (2005–2015).
The results of calculations by both methods have showed a high accuracy of approximation of actual data and model significance that as proved of determination coefficient high values. Calculated optimal values of the Gini coefficient have a slight variability over time comparing to actual data. The dynamics analysis has shown that for most countries, the series of optimal values of the Gini coefficients cross a series of actual values. It demonstrates that relationship between them is varying over time. However, the only exception is Latvia where according to the algorithm is calculations of, a number of optimal values of the Gini coefficient have been located below the actual. The stability verification of inequality optimal level is carried out by means of time series shift, for each country respectively. The calculations of function parameters are carried out in two methods and the optimal values of the Gini coefficient are determined which are characterized by stability for the majority of the studied countries. Although there are exceptions Greece and Latvia show different results by calculations via two methods.
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References
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