Reducing the Wealth Gap with a Simulation-Based Proposal
Utkan UluçayThe United Nations Sustainable Development Goals (UN SDG 10) seek to reduce inequalities within and between countries. The root cause is the inequality of income distribution due to the poor distribution of global wealth. Each country deals with this problem on its own terms, and factors such as differences in country conditions, historical background, and inconsistency of data make running a comparison challenging. This study examines policy alternatives for complex and highly interactive socioeconomic structures using a highly reproducible simulator package that does not require simulation experience. No research has been found in the literature to have examined the effect of policy alternatives on the Gini coefficient in a simulated environment. Therefore, by reviewing the income distribution inequality measurement methods, this study evaluates basic policy components with a discrete event/agent-based simulation. In order to reduce the inequality of income distribution, a schedule has been proposed that includes a short-term shock program, gradual increase of the wealth tax by 20%-50%, and a transfer of 20% of the obtained funds to the poorest 20%. Attention has been drawn to questions that are useful for contributing to decision makers and for discussions on the political agenda.
Gelir Dağılımı Adaletsizliğini Azaltmak İçin Simülatörlü Program Önerisi
Utkan UluçayBirleşmiş Milletler Sürdürülebilir Kalkınma Amaçlarının 10 numarasında ülkeler içinde ve ülkeler arasındaki eşitsizliklerin azaltılması istenmektedir. Söz konusu eşitsizliklerin temelinde gelir dağılımı adaletsizliği vardır. Gelir dağılımı adaletsizliği zenginliğin küresel paylaşımındaki sıkıntıların sonucudur. Her ülke bu sorunla kendi şartlarına uygun olarak mücadele etmektedir. Ülke şartlarının farklılığı, tarihsel süreç, verilerin tutarsızlığı gibi etkenler kıyaslamayı zorlaştırmaktadır. Bu çalışmada simülasyon bilgisi gerektirmeyen ve tekrar edilebilirliği yüksek bir simülatör paketi kullanılarak, karmaşık ve çok etkileşimli sosyo-ekonomik yapılar için politika alternatifleri incelenmiştir. Literatürde politika alternatiflerinin Gini Katsayısına etkisini simülasyon ortamında inceleyen bir araştırmaya rastlanılamamıştır. Dolayısıyla gelir dağılımı adaletsizliği ölçüm yöntemleri gözden geçirilerek kesikli olay / etmen tabanlı simülasyonla temel politika bileşenleri değerlendirilmiştir. Gelir dağılımı adaletsizliğini azaltmak üzere kısa süreli bir şok programla servet vergisini kademeli olarak %20-%50’ ye yükselterek elde edilen fonun %20’ sini en yoksul %20’ lik kesime transferini içeren bir program önerilmiştir. Karar vericilere katkı sağlanması ve politik gündem için tartışılmasında yarar görülen sorulara dikkat çekilmiştir.
The United Nations Sustainable Development Goals (UN SDG 10) seek to reduce inequalities within and between countries UN Türkiye, 2023). Countries have their own unique historical, social, cultural, and economic characteristics. In addition, currency fluctuations and the multiple data gathering and reporting methods contribute to this complexity. Learning from other countries’ experiences is difficult while trying to set a policy against income distribution inequality in a country.
A list of measures is found for assessing income distribution inequality, and graphing methods involve frequency distributions, areto’s Law of Income Distribution, and Lorenz curves. Meanwhile, statistical methods include relative mean deviations, the coefficient of variation, the Gini coefficient, and the Palma Ratio.
The most common measure of income distribution inequality is the Gini coefficient, with an ideal distribution corresponding to zero and total inequality corresponding to one. The Gini coefficient has no correlation to gross domestic product (GDP). The United States of America has a higher GDP than Türkiye, but both countries have similar Gini coefficients around 0.39-0.40.
Income distribution inequality has grown from 0.50 in 1820 to 0.65 in 2010 (Hayes, 2022). The European Union reports an average Gini of 0.30 for Europe and 0.43 for Türkiye in 2021 (Europe Sustainable Development Solutions, 2022).
Inequalities are related to development. The New Economics Foundation (NEF) set fıve pillars for explaining the wealth gap: 1) initial conditions (inheritance), 2) childhood (early access to mature health and education services), 3) external (globalization, liberalization), 4) national economy (structure, sectoral view), and 5) policy-taxes (government intention and tax system).
This study uses a simulation to consider all the critical system interdependencies, constraints, complexities, and variability, with convenience being had in comparing scenarios involving low-risk, low-cost ways, causes, and/or cures to real-life problems (Berger, 2022).
Goldratt Research Labs provided the programWealth Gap Simulator (v 1.2.4), a discrete event- and agent-based hybrid simulator. Its purpose is to test basic strategies in the quest to reduce the wealth gap (Goldratt Research Labs, 2023).
The simulator uses three main structures: non-zero-sum wealth, zero-sum wealth with capped gains/losses, and zero-sum wealth with uncapped gains/losses (Goldratt Research Labs, 2023). In a non-zero-sum wealth structure, the total wealth of the simulated population can increase or decrease. This is a representation of free trade and capital mobility. In a zero-sum-wealth structure, the total wealth is conserved. This is similar to closed economies that prevent capital diffusions. “Capped” refers to limiting gains and losses from any trade transaction based on the involved minimum wealth. Similarly, “uncapped” refers not to having no limits on gains and losses in trade transactions by following the involved maximum wealth. In this structure, one is able to gain or lose in proportion to one’s wealth.
The simulation has several parameters, such as number of traders, enforcement of unique trades, days of trading, capped or uncapped gains/losses, conservation of wealth, wealth tax, and tax redistribution (Goldratt Research Labs, 2023). These are the common ingredients in any policy alternative. Governments have a chance to assess their policy alternative using the simulation prior to a full-scale implementation.
This study will test these parameters as scenarios-per-structure to assess the effect on the Gini coefficient. The number of traders has no effect on the Gini coefficient. The longer the days of trading, the higher the Gini coefficient becomes.Wealth tax is beneficial only if a part of the collected tax is redistributed to the poorest 20%. Increasing the transferred amount or switching to the poorest 50% or greater has no positive effect on the Gini coefficient. Saving poor people from the consequences of losses, especially in their first days of trade, is more effective than limiting gains to reduce the Gini coefficient.
This study proposes a schedule that includes a short-term shock program, gradual increase of the wealth tax to 20%-50%, and a transfer of 20% of the obtained fund to the poorest 20% in order to reduce the inequality of the income distribution. Attention has been drawn to questions that are useful for contributing to decision-makers and for discussing on the political agenda.
The following is a list of questions for future researchers. Could Türkiye leave NATO or the customs union? Could Türkiye reduce the budget of its Ministry of Defense? Could Türkiye go bankrupt? Do any of these options help reduce Türkiye’s Gini coefficient? Is there a reasonable target for a Gini coefficient? Is continuing to support the poorest segments forever sustainable?
