Analysis of the possibility of eliminating excess inequality through income redistribution

Abstract

The main idea of the research paper is the redistribution of personal incomes. The subject is the effects of eliminating excess inequality. The core of the research paper is creating a model of erasing personal incomes under the subsistence minimum using a redistribution model. One possible way to get rid of personal incomes below the subsistence minimum is a partially progressive tax, which separates income into different sectors and settles a tax rate for each sector. Eventually, the redistribution can be held by certain society groups using a tax for wealthy people and government subsidies for poor segment of the population or evenly proportional income redistribution. It is useful to consider and compare two indicators: subsistence minimum and minimum consumer budget. A minimum consumer budget is a set cost of food and non-food products and services that meet basic physiological and sociocultural needs. In fact, it is the cost of the minimum consumer basket. The minimum consumer budget determines the lower bound value of life in society, followed by poverty. In Russia, this indicator is not popular, but it has a potential to be useful. In fact, one of the most important function of a tax system is keeping balance in society. The methodology is a redistribution optimization model. The optimal level of income inequality implies that there is a level of income inequality that maximizes economic growth. The optimization model consists of key parameters that determine inequality level, such as tax rate, education, and fertility. In some ways, the tax scale is not fair for definite groups of people. People have a social order to reconsider a tax scale. The result is a block of recommendations for shifting personal income inequality rate to a balanced point. The paper is aimed to provide a strategy for applying the fairer redistribution model with simple computations and prove that it can be applied with relatively low effort.