An article in the Wall Street Journal explained that the 10 wealthiest four-year colleges in the United States accounted for one-third of the total cash and investments held by all four-year colleges. The 40 wealthiest colleges accounted for two-thirds of all the cash and investments. A blog entry for an economics course taught at the University of Michigan compared the distribution of wealth across universities with the distribution of total household income in the United States: "One interesting thing is that the Lorenz Curve [for the United States and] ... the wealth for U.S. Universities have a similar distribution."
a. Assume that the federal government imposes a tax on the 40 wealthiest four-year colleges and distributes the proceeds to the least-wealthy colleges and universities. Would the value of the Gini coefficient used to measure the wealth distribution of four-year institutions increase or decrease? Briefly explain.
b. Assume that you represent one of the 40 wealthiest U.S. universities. Offer one reason why you believe that a wealth tax on your institution would not be a good public policy.