Money Distribution Simulation

Begüm Eryıldız
Sep 4, 2018 · 3 min read

Recently, I’m training myself in data analytics. I finished courses; Data Analysis Essentials Using Excel, Master Course in Tableau Prep and Tableau Desktop. I decided to learn some Python and I wanted to start with a small project. I decided to add taxes to this simulation to show the effect of tax rates to the economic inequality.

The idea is “ There are 100 people and everyone has 50 units of money. Everyone is constantly giving money each other at random.” I used a simulation written in python with 3000 iterations and added income and wealth taxes into the system. First start with no tax;

Economic Inequality Animation Wealth Tax: 0.0 Income Tax:0.0

In this animation, it’s visible that economic inequality is high without any tax regulation. The wealth of the richest person reaches to 160 units of money while there are people without money. People get rich randomly and they don’t lose their wealth. This phenomenon is explained in detail in a recent article: Talent vs Luck: the role of randomness in success and failure

“If you’re so smart, why aren’t you rich? Turns out it’s just chance.”

https://www.technologyreview.com/s/610395/if-youre-so-smart-why-arent-you-rich-turns-out-its-just-chance/

For this reason, many countries have the income tax regulation. They try to solve economic inequality with income tax. In the next animation, income tax rate is 52%. Since this is a closed system, the collected tax is redistributed equally among people similar to basic income.

Economic Inequality Animation Wealth Tax: 0.0 Income Tax: 0.52

Income tax slows down economic inequality but it doesn’t stop. The wealth of the richest person reaches to 100 units of money and still there are people without money. The problem with the income tax is that it discourages people from working. There is a joke that income tax is the punishment you get for working hard. With this model, people are inclined to invest in non-productive income models like housing. A healthy economy should avoid non-production markets unless it is essential.

Let’s try a hybrid wealth and income tax model;

Economic Inequality Animation Wealth Tax: 0.3 Income Tax 0.05

The wealth of the person who has the most is around 55 units of money and the wealth of the person who has the least is around 45 units of money. Wealth gap doesn’t change too much during the simulation. It’s stable. For economic equality, wealth gap should be minimal, but people who work hard should still gain more. People got rich for a short term but not for a long term.

This system promotes spending money and earning money with working. This system promotes working class. It prevents people from stocking too much money and people who are on the poor side can contribute back to the economy quickly. It is possible to adjust the income tax and wealth tax depending on the target wealth gap and the response of the society, but it is essential to have wealth tax to have an economically stable society on the long term.

I did this small project to learn Python, so it is not a very detailed project to show economic inequality. Check out the code at my Github repository;

Github repo:

https://github.com/begumeryildiz/money-distribution-simulation

Thank you for reading…

Thanks to Berk Gökden

Begüm Eryıldız

Written by

Mathematician, Economist

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