Redistribution of Wealth: An Agent-based Simulation

Without any doubt, the Covid-19 pandemic would have a long and lasting impact globally economically. The pandemic would increase the Gini index, a measure of income inequality, remarkably. The previous pandemics due to H1N1 in 2009, Ebola in 2014, and Zika in 2016 increased the index by 1.5 points, according to the World-Bank report issued in 2020. The income gap that has constantly been growing would accelerate with the pandemic. Income inequality often leads to social unrest, lower economic growth, increased health cost, and a lower level of satisfaction. This research studies how a taxation strategy affects the Gini index. We use an agent-based model and the yardsale model, where a small number of agents is established in a closed simulation world. The simulation world has conversed in the total wealth and the number of agents. Each agent performs a wealth exchange of a small amount with other randomly selected agents for each time instant. The simulation results suggest a critical tax rate such that the wealth distribution and Gini index are sustainable. A tax rate lower than the compulsory rate leads to a continuous increase in the simulation time’s income inequality trend. On the other side, a tax rate higher than the critical rate reduces the wealth distribution gap. We study various taxation rates and find a vital taxation rate to maintain the wealth distribution. If the tax rate is lower than the critical, the wealth distribution will become more expansive, and otherwise, a higher tax rate would shrink the wealth distribution.