Taxes way down => GDP Drops... WTF?

Hey ya’ll,

I was just playing around in Democracy 3 today as the UK. In one game, the first thing I did was save up enough political capital to completely eliminate (repeal) the income tax-- my biggest revenue source by far. Sure, I expected the deficit to begin to fly out of control (even with some mitigation), but I wanted to see a boost in popularity from the middle class and the capitalist groups, because they were the most annoyed by the tax. The funny thing is, those boosts were very small; but much more confusingly, even after several quarters, the GDP never rose. It actually went down.

Imagine that, workers in the country got a boost in their take-home pay of about 45% on average, probably multiplying their disposable income by several times, and apparently they spent LESS than they did in previous years-- they tightened their belts. No trend of adding additions to the house or new swimming pools, no rise in the start of new business ventures. Also, unemployment didn’t change much either. The national currency was still pretty strong, and the credit rating drops didn’t start for several quarters. The global economy was dropping a bit into a recession, but come on! This goes against all economic sense! Could somebody please explain this to me? Because as of this experience, the game appears to be fundamentally broken.

Another funny thing is how all the policies seem to do exactly what they say they will-- as long as you can afford to implement them. They never wind up having exactly the opposite effect of their intentions while the funding creates a new dependent class of politically active bureaucrats… and now it’s difficult to ever repeal. Good intentions seem to translate to good policy and government knows best. Oh, and “wealthy capitalist terrorists”… are you kidding me? If you anger those sort of people, they complain loudly and eventually just go somewhere else quite easily where they can turn a buck. They don’t go on some jihad to an opening ceremony at a primary school and shoot the prime minister… especially if they don’t have to pay any income taxes!


Capitalists don’t generally need to assassinate the leaders of the UK, USA, Canada, because those governments are very pro-free market in general. However, if you start applying the policies of Hugo Chavez to the USA, I think you would be surprised how many billionaires start having serious thoughts about how they can get rid of the current leader :smiley:

Regarding a tax cut resulting in GDP falling, this is not a direct linear relationship. The game is way more complex than that. How did you cut it? You must have cut back on something, maybe 3 or 4 or even 10 turns earlier, which has long run knock-on effects that may reduce GDP. Plus, GDP may be falling anyway due to a global recession. Check the current inputs and the historical chart for GDP to see what the real cause was.

Can’t it be also an economic effect on government spending? First of all, by cutting your income you’re deepening your debt, which will make investors/capitalists worried about your capabilities of paying it. Secondly, government spending has a factor in a country’s GDP - and that fact is known by either sides of capitalist thinking.

You probably angered capitalists, made middle classes - which are also composed of government employees, mind you - wary and poorer, and your interest rates should’ve sky-rocketed, which also made your market shrink. Sometimes cutting taxes is not the only answer to solve a country’s lack of entrepreneurism. If you’re thinking of boosting your country’s GDP, maybe you should’ve cut government spending on things like state pensions and raised it on technology grants for example.

I received my degree in economics and I think I can provide an opinion. First of all, there is a somewhat obvious bias in the game for liberal and social ideology. Ived adjusted the sliders to 50% and that seems to help compensate. As far as economic theory is concerned,GDP = government spending + (consumer spending - taxes) + investment + (exports - imports). The problem is that doesn’t take into account government debt or consumer debt, which affects interest rates. So basically if your debt is through the roof, interest rates will go up because your risk of defaulting increases. If you have a capital gains tax and no income tax, people aren’t going to invest or spend, they’re going to save. Savings doesn’t count as an investment. If interest rates are high people won’t borrow to invest in new buildings which would increase gdp. Furthermore this game leaves out the important feature of having a central bank. Monetary policy is a very important aspect of the economy. It also leaves out how central banks interact with others. If America is in debt but the rest of the world is in more debt, America would be better off relatively speaking but this game doesn’t account for that.

With that said, you must understand the math used is not extremely precise. The math methods are similar to what meteorologists use to predict weather. The stats the central planners use is a mathematical “best guess”. Therefore when the formulas are all run against each other in a simulation like this game, it’s not always going to operate correctly. But to answer your question, if you use that formula I gave you when you tweak policy you’ll figure it out. Just make sure you balance your budget anytime you give or take away. This game will assassinate you if you actually do run it responsibly because you inevitably have to cut state subsidies and entitlements and it infuriates the poor. I banned racial discrimination and I got assassinated by ethnic minorities.

Welcome to Dev bias OP. I got the game 2 days ago and have been greatly disappointed. Went through its review, and forum history, many people have pointed out the bias of the game and asked for a rebalance but it always gets shouted down by other biased opinions. Good news is the game is mod friendly.

There was a very good post in here already, so I’ll just say I’m in agreement that the debt continued to have a negative affect on your GDP, but it is true the game ludicrously disassociates tax cuts and economic boosts. You could have a balanced budget and cut taxes and have no affect on GDP, but then could raise taxes, spend more, and boost GDP.

He said he cut taxes and ran a deficit so it’s not likely he cut spending much. Also where do you think the money goes? He gave people 45% of their pay back. Should that money just disappear out of the country and economy? It’s still there just spent differently. There could be side effects and in the short term very ill effects, but there is also very strong short term affects to potentially balance it out, and how in line the rest of his policy is over time would prove overly beneficial.

The game seems to negate the benefits of free market principles, and exaggerate its draw backs, while exaggerates the benefits of socialism and completely dismisses its set backs.

Almost every political system and government type has proven that it can be effective for a time. There is no one all encompassing succesful model, everything improves one thing at the expense of another based on which it values more. Successful governing isn’t about being right, it’s about being consistent. You can make any system work as long as all the policies serve that system.

Good to know. To that end I prefer Tropico 5 where I know I am the benevolent dictator. :wink:

Does your model include unfunded liabilities?

You like a little progressivism, eh?

No, it’s magical thinking. Central planning always results with genocide.