The effects of taxes on wealth inequality in Artificial Chemistry models of economic activity.

Wolfgang Banzhaf,Alejandro Raul Hernandez Montoya

doi:10.1371/journal.pone.0255719

Abstract

We consider a number of Artificial Chemistry models for economic activity and what consequences they have for the formation of economic inequality. We are particularly interested in what tax measures are effective in dampening economic inequality. By starting from well-known kinetic exchange models, we examine different scenarios for reducing the tendency of economic activity models to form unequal wealth distribution in equilibrium.

Highlights

Today’s societies suffer, for the most part, from a form of economic inequality that seems very difficult to treat or even only to attempt to remedy
When we show distributional effects, we do not show absolute values, we rather bin into deciles of wealth, i.e. agents relative to each other
We present a final set of simulations on a flat income tax by moving in the opposite direction: A low flat tax rate of 5% (Fig 7, right) which again demonstrates the influence of income tax rates on wealth inequality, though a weak one in this case

Summary

Introduction

Today’s societies suffer, for the most part, from a form of economic inequality that seems very difficult to treat or even only to attempt to remedy. Simulation models have been formulated that corroborate the causal relationship between economic inequality and societal collapse [7]. Even those authors who point out the beneficial effects of inequality on the formation of better organized societies admit [8, p.176] that inequality needs to be fought by periodic redistribution of wealth. Some historians have delved into a historical analysis of the reasons for the retreat of economic inequality, finding societal collapse among them Their more general findings point to other probably even more harmful and violent causes, catastrophic events like epidemics, wars and revolutions that—together with societal collapse—are virtually the only reasons for a retreat of inequality (see the comprehensive study of Scheidel [9]). Economic inequality seems to be entrenched and potential non-harming remedies seriously lacking

Results

Discussion

Conclusion