Getting to a feasible income equality

TL;DR

This paper introduces a practical concept of feasible income equality based on social welfare maximization, using sigmoid welfare functions and Boltzmann income distribution, with empirical analysis for policy guidance.

Contribution

It proposes a new feasible income equality concept, modeled with sigmoid welfare and Boltzmann distribution, providing a realistic benchmark for policy interventions.

Findings

Optimal income distributions can be evaluated using the proposed model.

Feasible income equality offers practical guidance for government policies.

Empirical analysis of four countries demonstrates the model's applicability.

Abstract

Income inequality is known to have negative impacts on an economic system, thus has been debated for a hundred years past or more. Numerous ideas have been proposed to quantify income inequality, and the Gini coefficient is a prevalent index. However, the concept of perfect equality in the Gini coefficient is rather idealistic and cannot provide realistic guidance on whether government interventions are needed to adjust income inequality. In this paper, we first propose the concept of a more realistic and feasible income equality that maximizes total social welfare. Then we show that an optimal income distribution representing the feasible equality could be modeled using the sigmoid welfare function and the Boltzmann income distribution. Finally, we carry out an empirical analysis of four countries and demonstrate how optimal income distributions could be evaluated. Our results show that the feasible income equality could be used as a practical guideline for government policies and interventions.