Exchange Models for the Emergence of Income Distribution and Economic Inequality

Abstract

Also motivated by the topical problem of growing economic inequality, we propose and investigate models describing the formation process of income distribution in a closed society. Our approach fits in with a complex system perspective. We look at society as a system composed by a large number of individuals, divided into income classes. The information we derive on observable "macroscopic" features results from the interplay of a whole of interactions -money exchanges, payment of taxes, redistribution of benefits, payment of fines -occurring between individuals, i.e. at the "microscopic" level. In order to show the flexibility and the exploratory aspect of the models, we consider and compare cases characterized by different tax rates or in which means-tested welfare policies, tax evasion, taxpayer audits are present.