Rich or poor: Who should pay higher tax rates?

TL;DR

This paper models how different tax rate policies based on wealth levels influence long-term wealth distribution, showing that higher taxes on the poor lead to wealth concentration, while lower taxes sustain economic diversity.

Contribution

It introduces a dynamic agent model with wealth-dependent taxes to analyze the long-term effects of tax policies on wealth distribution.

Findings

Higher taxes on the poor lead to wealth concentration.

Lower taxes on the poor sustain ongoing economic diversity.

Tax policy impacts long-term wealth distribution.

Abstract

A dynamic agent model is introduced with an annual random wealth multiplicative process followed by taxes paid according to a linear wealth-dependent tax rate. If poor agents pay higher tax rates than rich agents, eventually all wealth becomes concentrated in the hands of a single agent. By contrast, if poor agents are subject to lower tax rates, the economic collective process continues forever.