Research team finds wealth tax can reduce number of poor

Research team finds wealth tax can reduce number of poor

Download Image: Web

An interdisciplinary team of students and faculty from Lycoming College have come together to co-author an article which has been published in the journal Chaos: An Interdisciplinary Journal of Nonlinear Science. Both students and faculty from the departments of economics and physics at the small liberal arts and sciences institution collaborated for the study, which examined how the distribution of wealth is affected by tax and redistribution strategies.

Chaos: An Interdisciplinary Journal of Nonlinear Science is a peer-reviewed publication devoted to increasing the understanding of nonlinear phenomena and describing the manifestations in a manner comprehensible to researchers from a broad spectrum of disciplines.

The Lycoming research team’s paper, “The Effect of Various Tax and Redistribution Models on the Gini coefficient of Simple Exchange Games,” published in Chaos on Aug. 1, describes a study of an agent-based model that simulates a simple economy. The base model produces a skewed wealth distribution, similar to that observed in the real world with many poor individuals and a few very wealthy individuals. The authors examined how the distribution of wealth in this simulated economy is affected by various tax and redistribution strategies, finding that, for the modeled economy, the most effective means of flattening the wealth distribution — moving more money to the poor — is by using a wealth tax, or by using an income tax that redistributes wealth to the poorest 50 percent.

The idea to collaborate on a paper came to Christopher Kulp, Ph.D., professor of physics and department chair, during a sabbatical when he was doing a lot of reading on agent-based models. After Michael Kurtz, Ph.D., assistant professor of economics, heard Kulp present the idea to the faculty, his interest was piqued. The two spent the next several years working through different scenarios as the project evolved, enlisting a number of students to participate along the way.

The early stages of the project saw economics major Georgios Charalabidis ’18 carry out some preliminary work by identifying applicable economics literature on which to base the paper, as well as historical tax brackets, while Ian LaBar ’17 wrote the initial code. As the project evolved, the need for Charlabidis’ data gathering came to a close, while the focus of the problem shifted from LaBar’s original code. Although neither was listed as co-author on the paper, the experience they gained was invaluable.

With this progression, Luke Quigley ’18 and Nathaniel Wilston ’19 were brought on board, and it was their coding work in Python and Mathematica that contributed to the final published work that appeared in Chaos. Both have also graduated from Lycoming and moved on, but can now call themselves published authors as they embark on new adventures — Quigley as a technical consultant for cloud services firm StratoZone, and Wilston as a radar modeling and simulation analyst at Booz Allen Hamilton.

“What makes science ‘science’ is trying to understand the way the world works: It’s a complex place, and how do we make sense of what’s going on and why? This really became central to our collaboration,” said Kurtz. “We found quite a bit of common ground, and it was important for our students to see this.”

The project followed a three-year path that took the team to a few dead-ends. Initially, Kulp and Kurtz thought entropy, a measure of disorder, would be central to the project. In the process of investigating, however, they noticed how taxes were affecting the wealth distribution, and so over time, moved more toward exploring different tax regimes instead of entropy.

The final paper uncovered some interesting findings: In the model economy, wealth taxes flatten wealth distribution more than income tax, whereas the number of tax brackets do little to change wealth distribution; if a society taxes income instead of giving everyone a payout, a payout exclusively to the poorest 50 percent is most effective in flattening wealth distribution; and even a very small wealth tax can flatten out wealth distribution and move money to the poor.

“This paper really allowed us as faculty, as well as our students, to see an interdisciplinary collaboration in action,” said Kulp. “This is invaluable to our core mission, and I expect to see more of it on our campus.”

The paper can be found at https://aip.scitation.org/doi/full/10.1063/1.5110487.

Useful Resources