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

Abstract

Income inequalities and redistribution policies are modeled with a minimal, endogenous model of a simple foraging economy. The model is scaled to match human lifespans and overall death rates. Stochastic income distributions from the model are compared to empirical data from actual economies. Empirical data are fit to implied distributions providing necessary resolution for comparison. 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. Estate taxes in the model appear quite effective in reducing inequality without reducing total wealth. Significant income inequality emerges for the model for a population of equally capable individuals presented with equal opportunities. Stochastic population instability at both the high and low ends of infertility are considered.