System Structure of Agent-Based Model Responsible for Reproducing Business Cycles and the Effect of Tax Reduction on GDP

Abstract

Validation has been an important issue in using the ABM approach. It has been pointed out that deriving the necessary conditions for reproducing specific macro behavior is difficult due to the functional complexity of the models. However, based on the authors’ experience in ABM, we believe it is possible to define the necessary conditions for reproducing each macro behavior by using the structure of the system to express the input conditions. In the present study, a series of computer experiments are conducted to verify this idea. The study analyzes business cycles and the effect of tax reductions on GDP as examples of fundamental macro behaviors of economic systems. The results indicate that the essential model structures for reproducing business cycles and the effects of tax reduction are credit creation for investment and factors relating to the inefficiency of the government’s, household’s, and firms’ expenditures, respectively.