Faculty Sponsor: Dr. Shyam Gouri Suresh
Globally, the top 1 percent’s wealth share has increased by 5 percentage points since 1980, while the share of the bottom 75 percent remained constant at around 10 percent. The growing wealth inequalities have gained much attention in economic literature and public discourse. Large wealth inequalities are often associated with having a percentage of the population, despite being additive members of society, living below the poverty level. My project aims to observe the effect of various equity tax policy regimes on wealth creation and wealth equality. I conduct a series of experiments in an artificial society called the Sugarscape where agents primary goal is to collect wealth during their lifetime. My modified Sugarscape model includes 4 distinct tax regimes. A tax haven where agents’ wealth is not taxed. A flat rate tax regime where all agent’s wealth is taxed by a uniform percentage. A progressive tax regime where the rate of taxation is dependent on the wealth bracket an agent is in. Finally, there is the total wealth redistribution regime where all wealth is taxed. Any wealth collected through taxation is equally redistributed to the population. I implement spillover effects which represent wealth creation or the capital gains from investments in the vicinity. Tax havens had the highest average wealth per capita yet the highest wealth inequality amongst the tax regimes. This is similar to many countries that have competitive GDP per capita figures yet still face large wealth disparities. The progressive tax regime has the highest total wealth amongst the tax regimes and the second lowest Gini coefficient. The progressive tax system best allows all agents to take advantage of spillover effects and generate more wealth. Higher marginal tax rates for agents in high-income brackets causes this regime to be more effective than the flat tax regime. My results are not robust in the sense that many important social factors affecting inequality such as geography, heritage, and history.