Death, Taxes, and Inequality. Can a Minimal Model Explain Real Economic Inequality?

TL;DR

This paper presents a minimal endogenous model of a foraging economy that explains real-world income inequality and the effects of redistribution policies, aligning well with empirical data and offering insights into population welfare.

Contribution

The paper introduces a simple, endogenous model that reproduces observed income inequality and policy impacts, providing a new tool for analyzing economic disparities.

Findings

Model reproduces empirical income distributions

Redistribution policies affect wealth and inequality similarly in the model and real data

Model enables detailed welfare analysis beyond traditional metrics

Abstract

Income inequality and redistribution policies are modeled with a minimal, endogenous model of a simple foraging economy. Significant income inequalities emerge from the model for populations of equally capable individuals presented with equal opportunities. Stochastic income distributions from the model are compared to empirical data from actual economies. The impacts of redistribution policies on total wealth, income distributions, and inequality are shown to be similar for the empirical data and the model. These comparisons enable detailed determinations of population welfare beyond what is possible with total wealth and inequality metrics. I