Influence of taxes in wealth distribution

8 points

12 years ago

Imagine a society. A society where all the wealth is distributed among its population. In this society, every exchange of wealth occurs between pairs of randomly chosen individuals. On each of these exchanges, more skilled individuals have advantage in relation to the less skilled ones and some individuals are more willing to make business than others.

I thought about a simple model to simulate a society such as the one described above. Considering that skill is randomly distributed, I was hoping that, after some simulation runs, about half the population would prosper while the rest would be in debt. To my surprise, the society rapidly converges to an inequality scenario where 90% of the population ends in debt! Then, I decided to check the influence of taxes.

To simulate the influence of taxes, suppose that on each exchange a tax is collected. The amount collected from the taxes is then homogeneously distributed among the entire population.

Experimentally, I verified that a tax rate of about 20% is needed to guarantee a stabilization of the society where only 50% falls in debt.

Simulation code is as follows: http://pastebin.com/N4g6ATuW