Journal of Statistical Physics, Vol. 114, Nos. 3/4, February 2004, p. 1115-1125.
We present an extension of the density-functional theory (DFT) formalism for lattice gases to systems with internal degrees of freedom. In order to test approximations commonly used in DFT approaches, we investigate the statics and dynamics of occupation (density) profiles in the one-dimensional Potts model. In particular, by taking the exact functional for this model we can directly evaluate the quality of the local equilibrium approximation used in time-dependent density-functional theory (TDFT). Excellent agreement is found in comparison with Monte Carlo simulations. Finally, principal limitations of TDFT are demonstrated.