The player's actions
The decisions the player can make today, and those that will arrive with the next versions of the game.
In plain words
The player holds the budget and the policy rate. They set eight spending lines by their share of the budget, fifteen taxes by their rate, and a minimum pension that decides, with the tax schedule and the VAT rates, who pays and who receives. Depending on the country's regime, each decision belongs to parliament, which votes on it, to the government or to the central bank, and it takes effect on the 1st of the following month, or on the 1st of the month after its vote. A decision outside the bounds is refused without changing anything. The player also responds to what happens, to the events that hit their country as well as to protest movements. During campaigns, they debate and make promises, and, if they are president, they can dissolve the assembly.
Today's levers
Primary spending, which is what the state spends not counting the interest on its debt, is, like revenue, the sum of the budget lines (E26), and it is this sum that the rest of the model reads. A revenue line is what its taxes raise (E35), and the policy rate is set in percent per year.
| Lever | Unit | Bounds | Who decides, in a democracy | What it moves |
|---|---|---|---|---|
| eight spending lines: pensions, other social benefits, health, education, defence, security and justice, economy and infrastructure, administration and other | % of primary spending | each line from 0 to 40 points of GDP, 80 at most for the total; the sum of the requested shares below 100% | parliament, by a vote | primary spending, and therefore the balance (E8) and demand through the impulse (E1), and the income of the groups that receive the line (E27) |
| fifteen taxes: the top rate of income tax, employee and employer contributions, payroll taxes, the standard VAT rate and its rates on food, on household energy and water, and on medicines, excise duties, corporate tax, property taxes, wealth tax, inheritance tax, transfer taxes, customs duties | the statutory rate in %, or the level of the schedule, 100% at the start | income and inheritance 0 to 90; contributions 0 to 50; VAT 0 to 40; corporate 0 to 60; wealth 0 to 10; customs 0 to 100; levels 0 to 300; 80 points of GDP at most for total revenue | parliament, by a vote | revenue, with the same effects, and the income of the groups that pay the tax |
| the minimum pension, read in dollars per month | % of pensions | from 0 to 100, within what it can still change | parliament, by a vote | who receives pensions, and their amount a little, depending on how people respond (E29) |
| policy rate | % per year | −1 to 500 | the central bank, without a vote | demand (E1), the market rate (E10) |
In an electoral autocracy, parliament also votes on the budget, but in 15 days instead of 30, whereas in a closed autocracy the government decides everything, without a vote. How each party votes is described in Decisions and votes. A decision that nobody votes on takes effect on the 1st of the following month, even when it is taken on a 1st. A requested share of the budget waits for its vote and the 1st of the month, and only turns into an amount on that day.
A country shut out of the markets, to which nobody will lend any more, cannot spend more than its revenue excluding the effect of the economic cycle, whatever the player has decided (E16). The bound on the policy rate is that of the variable (§3.1), and the bound of 80 points encloses the budgets observed in the world, where revenue ranges from 2.9 to 74% of GDP and spending from 5.2 to 57.8%.
Responding to what happens
| Action | When | What it does |
|---|---|---|
| respond to an event | within the 30 days after an event that hits the country, once | raises a budget line for a time, changes the output loss, raises popularity (E34) |
| concede, receive them, use a firm hand | when a group in the country is in the streets, at any time | withdraws the contested measure or orders what is demanded, calms anger, costs popularity for the firm hand (E33) |
| choose a debate line | seven days before each round of an election that judges the player's camp | defend your record, attack or promise, for a few votes (E31) |
| make a promise | during the campaign, three at most | part of the promised gain granted in advance, and a commitment to keep within two years (E32) |
| dissolve the assembly | when the player holds the presidency, except in the year after an election that followed a dissolution | an assembly election 40 days later (E22) |
| carry on the game | when the player has lost power, or, as president, during a cohabitation | the player now plays the party that leads the government (E22) |
A player who has lost power gives no more orders until they carry on the game, and both their pending orders and their bills before parliament are cancelled.
Levers to come
The player already sets fifteen budget lines (E26). They are amounts, and all those on the same side weigh the same on the economy. What follows says what the literature provides to go further, tax by tax and line by line, and for 2 or 3 reforms with a delayed effect. None of this is in the game yet.
Three taxes, which split gov_revenue:
| Lever | Observed bounds | What is needed to model it |
|---|---|---|
| standard VAT rate | 5% (Canadian federal GST) to 27% (Hungary); OECD average 19.3%; EU minimum 15% | a base, and its actual yield: the OECD measures 0.58 of the theoretical yield on average (0.33 in Mexico, 0.96 in New Zealand) |
| top marginal rate of income tax | 10% (Bulgaria, Romania) to 60.5% (Denmark) | the elasticity of taxable income, 0.12 to 0.40 in the long run (Saez, Slemrod and Giertz 2012), which gives the share of the mechanical gain that is lost |
| corporate income tax | 0 to 50% (Comoros), with an effective floor of 15% for large multinationals | the semi-elasticity of reported profits to the rate, about 0.8 (Heckemeyer and Overesch 2017) |
Multipliers by tax remain the weakest point of the literature (three irreconcilable families of results, §8.3).
Five spending items, which split primary_spending:
| Item | Observed share (% of GDP) | Multiplier, if it differs |
|---|---|---|
| social protection | 0.8 (low-income) to 26.5 (Finland) | general transfers 0.2 to 0.6; when targeted at constrained households, close to government spending (Coenen et al. 2012) |
| health | ≈ 1 (low-income) to 7.9 (high income) | like government consumption |
| education | 3 to 4.8 | same |
| defence | 1.5 to 2.8 | same |
| public investment | ≈ 3 (advanced) | 0.4 in the first year, 1.4 after four years, and a lasting effect on potential (IMF, October 2014 WEO) |
Two or three reforms with a delayed effect: the literature has not yet been surveyed for them. Candidates, still to be decided: a labour market reform that lowers equilibrium unemployment; a public investment drive that raises potential (IMF 2014); a reform of the tax administration that raises the yield of VAT.