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Discussion of the Gini results

W. Christian

The results of simulations using the models we have discussed show that for proportional distribution of tax revenue, the Gini coefficient is greater than 0.9 for income and sales taxes and about 0.65 for a wealth tax. If revenue is distributed evenly, the smallest Gini coefficient is 0.42 for the wealth tax, 0.69 for the income tax, and 0.63 for the sales tax. Again reality is somewhere between equal and unequal tax revenue distribution, but closer to the value we obtain for proportional distributions for most countries.

We have learned by simulating several simple models that the result of random transfers of wealth between agents causes the wealth to eventually accumulate in a single agent, leading to excessive wealth inequality. We also saw that it is important to have some type of wealth distribution to reduce wealth inequality. A progressive tax on wealth plus an equal distribution of tax revenue leads to the greatest reduction of wealth inequality among the various taxation and tax revenue distribution mechanisms that we considered.

Excerpt From: Tobochnik, Christian, and Gould. “Modeling Wealth Inequality.” iBooks.