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Indeed.

Plato is Laffering at us as we debate taxes? : (

Thanks for bringing in some stats and calculations, Spock.

I may be dumb for asking this, but why is cumulative income at zero on day 1735? Does it really remain that steady increase regardless of tax changes? Seems hard to believe, but like I said, I may be dumb.

wow, interesting analysis

Pretty sure we're the only country that feels the need to always change the tax rates.

I computed the sum of the daily income column (K) in the spread sheet. So this "zero" is just the integration constant.

More details :

Columns F and G gives the country accounts, but these accounts are reduced almost each day by MPPs and donations. Thats why the authors of this spreadsheet computed the "daily income", which gives the amount of money collected each day. If we compute the sum of this daily income, we get the cumulative income shown in my second graph. To get back the country accounts, we can compute the cumulative expenses (donations & MPPs) and substract them from the cumulative income.

But isn't Daily Income the graph that provides the clearest example of how much tax we take in as related to tax changes or game events?

The cumulative graph does seem to show a slight drop in the more regular rise from 1735-1790.

You're comparing one single facet of a very multi-facted entity such as daily income. Saying higher VAT doesn't increase income is like saying a stores sale's don't affect it's revenue. It's just plainly false.

The last date in which we had all our resource bonus' and had a different tax structure was day 1793.
Tax revenue for that day was 14,757 with active population of 1600.

Last date under current tax structure with same usual resource bonus was day 1821.
Tax revenue for that day was 3934 with active population of 1450.

Plugson : "But isn't Daily Income the graph that provides the clearest example of how much tax we take in?"

Yes, but the day-to-day fluctuations hide the trend and make this data harder to analyse. The equivalent parameter of the daily income is the slope of the cumulative income graph, which better shows the trend.

Bryan Alexander : "It's just plainly false. "

In real life, I agree.

But the data we have here, in eRepublik, shows that VAT on weapons has no impact on government income.

It could also be Laffer theory, but I doubt it.

There are several and pretty large VAT rate changes in the observation period. The VAT was at 3%, was raised to 12%, then to 17%, then to 20%, then back to 10%. Nonetheless, this has no impact on the trend.

With is lack of continuity in the fiscal policy, eCanada is probably the best canadiate in order to evaluate these kind of things!

Yes, so best not to change VAT. Or change it that much.

And I have another fact to tell you. A lower food VAT I think will increase revenue. So 10% is good. Low food VAT means that investors can buy off the market. This means that for every product produced the government is getting double or triple the revenue.

Is it the "Addy factor"?

No. because he left on day 1801!

http://www.erepublik.com/en/article/-wyd-i-039-m-on-the-road-again-day-1801--2145259/1/20

@chriswen

"And I have another fact to tell you. A lower food VAT I think will increase revenue. So 10% is good. Low food VAT means that investors can buy off the market. This means that for every product produced the government is getting double or triple the revenue. "

Makes sense.

Low VAT indeed stabilizes the market.

A good way to test this theory would be to ... lower the VAT to 5%

Who is willing to try it?

The only way that VAT could have no conceivable impact on daily revenue is if the raise in tax brings in no extra dollars.
For this, a (simplicity sake) 10% increase would have to be offset by a DECREASE in item price.
Q7 sells at 17CC, 10% VAT makes that 1.545 CC / Unit.
20% VAT makes it 2.84 CC / unit.

For there to be no change in income, 20% VAT would need to bring in 1.545 CC, which means Q7 prices need to change to 9.27 / Q7. So any Q7 price above this = more income than at 10%

I don't see a 10% increase in VAT making prices drop by almost half. If anything, prices should rise by about 1.5 CC per unit to offset tax cost, therefore bringing even more tax dollars.

Food, Ummm but if prices rise people will just buy food off the black market. Really just missing out of all the tax revenue. And new players will have less purchasing power. I assure you the food company owners will be hard hit. There revenues will decrease. And also a major role in price stabilization is arbitrage, it also adds liquidity to the market. It also adds to government revenue.

Bryan Alexander : I think the analysis presented in your last two messages is wrong. Do you know about the Laffer theory? People can change their consumption habits if the tax changes. http://en.wikipedia.org/wiki/Laffer_curve

However, I agree that these results are hard to explain without putting Plato into the equation. The Laffer theory cannot work so well!

Canada makes a lot of food. A low food VAT gives an incentive for people to risk there own money to buy and sell food, for a cent more. And the government gets double the tax.

@chriswen

I do agree

If the VAT has no impact on government income, so why don't lower it?

This thread reminds me my thesis defence!

Spock: Laffer curve applies to income tax, not things like sales tax.
Also, this is a game; restraint on spending digital currency in an otherwise meaningless game can't be measured through economic theory.

Besides, according to your link, the optimal tax % is estimated to be much higher than 15%.

@Bryan Alexander : Laffer curve applies to income tax, not things like sales tax.

I disagree. If you change the sale tax, people will change their habits.

@Bryan Alexander : "Besides, according to your link, the optimal tax % is estimated to be much higher than 15%. "

We're in erepublik. It's MUCH EASIER to change our habits than in real life.

You do know that Laffer, is laughed at, by most economists who aren't staunch conservatives right?

I don't know about you, but using your own graph, I see a 50% reduction in pitch after VAT was decreased. After all, your methodology is always going to produce an upward climbing line in your second graph, as negative income isn't possible. But the pitch of the line drops from approximately a 30 degree incline day over day, to a 15 degree incline, day over day.

Goran Thrax

@Goran Thrax

The problem with conservatives IRL like Harper or Romney is that they think they are on the right side of the Laffer curve, while most of countries are actually on the left or on the top of it. It makes a big difference depending where you are, and it's really hard to know where you are!

@Goran Thrax "I see a 50% reduction in pitch after VAT was decreased."

Actually, it started to drop NINE DAYS BEFORE the VAT change... Little problem with causality here.

@Goran Thrax "your methodology is always going to produce an upward climbing line in your second graph, as negative income isn't possible. But the pitch of the line drops from approximately a 30 degree incline day over day, to a 15 degree incline..."

YES, I saw this change in the trend (read carefully my article...) But it's impossible to explain this particular trend with the VAT rate change.

The VAT rate was increased from 3% to 20%, but we cannot see any change in the slope.

Again, you are comparing one contributing factor of many and assuming that it explains the whole.

Did you look into other factors that may explain this change or lack of change? I would hazard a guess and assume no, as I am looking at stats that have some contributing factors that would have significantly affected the daily income aside from just weapons VAT.

There are many contributing factors in this equation; including other VAT levels, income tax, active citizens, resource bonus, etc.

Bryan Alexander : "Again, you are comparing one contributing factor of many and assuming that it explains the whole."

We see a change in the trend after day 1793, but it's hard to explain it, and the VAT rate on WEAPONS (from 3% to 20😵 clearly do not have any impact on the trend (while it has a HUGE impact on the price of weapons...). That's what I say.

If you have a better explaination/theory, please share it with us!

So, basically your income stays relatively unchanged but, either purchasers or company owners lose out or both.

Or Plato adds / removes some money in the country accounts?

He also created the market bots! He is almighty!

It is more of a socio-economic / militaristic shift that explains the change in trend. day 1793 marked the beginning the Poland's attack on eCanada which resulted in a wipe. Day 1783 marked the last day we existed as a complete 13 region, 40/60 bonus country.

We were at war and "incomplete" for a length of 28 days (ending day 1821). This is one of the last days we made over 10k daily income (only have had it twice since day 1793).

Continued....

So clearly there is a big social activity that affected the country.

Also, this led to a wipe/lack of congress. While this doesn't sound like a huge deal, it prevented new citizens immigrating. Day 1793 also marked the beginning of a mass exodus from eCanada, as over the next 40 days or so we see ourselves down 250 citizens - thus greatly affecting the daily income.
250 less active citizens is a serious impact, and I feel is most likely the greatest causal affect on the downward income slope

Correction in first post - day 1793 was the last day as a complete country, not 1783.

Bryan Alexander : "250 less active citizens is a serious impact, and I feel is most likely the greatest causal affect on the downward income slope "

May be. However, we're now back on the map with all our resources, but the trend has not changed yet (may be it's to early to tell, I know...)

On the other hand, even before DAY 1793, the VAT rate (increased from 3% to 20😵 had no impact on government income.

It was only raised for 8 days before war broke out, not really a suitable length of time to base any judgement.
Also, we are 250 citizens down from before. Take 250 purchasing citizens out of the equation and of course the trend hasn't begun to swing upwards yet.
You need citizens to generate income! 🙂 I am sure once population levels rise we can see higher income, but until then, we need to generate money somehow.

Also the 3% Vat change also saw a big change in income tax, as well as big drops in import tax. Definitely factors as well.

Saying higher VAT doesn't increase income is like saying a stores sale's don't affect it's revenue. It's just plainly false.
_______________________

No. It is like saying that the volume of store sales doesn't affect revenue if unit price changes proportionately. The situation is multivariate, just as you point out. The implication, clearly addressed in this article, is that the planned economy is designed to cause change in unit price AND volumes which effectively counteract tax change.

From day 1740 to 1793 (53 days... pretty long period), there are large VAT changes (3% - 20😵, but no change in the trend of the government income.

There is definitely something that happened on day 1793 approximately, but this is not the VAT rate that has caused this.

alternatively, if not designed to do so, the planned economy effectively operates in this way.

Hey olivermellors! Nice to see you! \o/

olivermellors, some smart stuff.

hi spock. I'm awfully glad to hear your voice again.
I approach the eEconomy axiomatically.
1. Practically no humans buy tanks on the ecanadian market. Substantially all tanks are purchased by the bot.
2. Accordingly, the "hidden hand" of the market is not motivated by scarcity or need.
3. Market forces are highly dependent on issues of income support.
4. Hence, prices will be supported at rates which allow players to play at supportable frustration levels without gold buying.

5. high, but supportable frustration levels, encourage gold buying.

😁 olivermellors 😁

Nice analysis. 🙂

Now: what this means for tax policy.

in the real world, changes in taxation of goods will lead to increase in price. The amount of change depends on elasticity and rational decisions by buyers and sellers in the market. Increases in tax rate usually increase government revenue because of the selfishness of the market actors : i.e. sellers are always motivated to increase volume and share.

This has NOTHING to do with erep where the concept of elasticity has absolutely no place.