# TaxAgent: How Large Language Model Designs Fiscal Policy

arXiv: https://arxiv.org/abs/2506.02838 · HTML: https://mlsanity.com/paper/2506.02838/

## Key facts

- Cited by 1 papers in the map (data through 14 Oct 2026).
- Builds on 5 of its 22 references that are in the map.
- First posted on arXiv 3 Jun 2025.

## Builds on (most cited first, 5 of 5)

- [EconAgent: Large Language Model-Empowered Agents for Simulating Macroeconomic Activities](https://mlsanity.com/paper/2310.10436/) (2023)
- [A Survey of Large Language Models for Financial Applications: Progress, Prospects and Challenges](https://mlsanity.com/paper/2406.11903/) (2024)
- [The AI Economist: Improving Equality and Productivity with AI-Driven Tax Policies](https://mlsanity.com/paper/2004.13332/) (2020)
- [CompeteAI: Understanding the Competition Dynamics in Large Language Model-based Agents](https://mlsanity.com/paper/2310.17512/) (2023)
- [PhyX: Does Your Model Have the "Wits" for Physical Reasoning?](https://mlsanity.com/paper/2505.15929/) (2025)

## Built on by (most cited first, 1 of 1)

- [DeepScholar-Bench: A Live Benchmark and Automated Evaluation for Generative Research Synthesis](https://mlsanity.com/paper/2508.20033/) (2025)

## Abstract (arXiv)

Economic inequality is a global challenge, intensifying disparities in education, healthcare, and social stability. Traditional systems like the U.S. federal income tax reduce inequality but lack adaptability. Although models like the Saez Optimal Taxation adjust dynamically, they fail to address taxpayer heterogeneity and irrational behavior. This study introduces TaxAgent, a novel integration of large language models (LLMs) with agent-based modeling (ABM) to design adaptive tax policies. In our macroeconomic simulation, heterogeneous H-Agents (households) simulate real-world taxpayer behaviors while the TaxAgent (government) utilizes LLMs to iteratively optimize tax rates, balancing equity and productivity. Benchmarked against Saez Optimal Taxation, U.S. federal income taxes, and free markets, TaxAgent achieves superior equity-efficiency trade-offs. This research offers a novel taxation solution and a scalable, data-driven framework for fiscal policy evaluation.