Post Reply  Post Thread 

Cut spending or raise taxes?

Author Message
shadow114
Junior Member
*


Posts: 3
Words count: 314
Group: Basic
Joined: Jul2012
Status: Offline
Reputation: 0
Experience: 10
Glory Points: 0
Medals: 0

Post: #1
Cut spending or raise taxes?

Which do you think is better? My nation needs to handle it's debt.

I am perplexed. My economy has done consistently better than the average nation, but my economy hit a rut a few quarters ago. -4.70% GDP growth and -2.00% inflation (deflation) worried me. It reminded me of the Great Depression in a way (negative growth and deflation plagued the US during the 1930's). So I did a few things which lead to 5.85% GDP growth in the next quarter as well as the following results:


Gross domestic product 7,994.73 Bil. € 7,641.64 Bil. €
Imports 1,080.72 Bil. € 934.30 Bil. €
Exports 680.85 Bil. € 698.82 Bil. €
Private consumption 5,260.47 Bil. € 4,917.73 Bil. €
Government purchases 1,409.44 Bil. € 1,345.53 Bil. €
Gross investment 1,724.68 Bil. € 1,613.86 Bil. €
Net income 1,929 € per month 1,823 € per month
Living costs [?] 792 € per month 788 € per month
Labour Time 8.74 h/Day 9.31 h/Day


I cut acquisition taxes, increased the money supply, and increased Government spending. My economy has since been growing at the expensive of adding on more and more debt. So which is the best way of handling debt? If I raise taxes it will hurt investment and private consumption, and cutting spending will reduce Government purchases that will also lower GDP and make my citizens unhappy. Seems like either way I look at it I will be in trouble.

31.07.2012 09:14
Find all posts by this user Quote this message in a reply
Helsworth
Heathen
****


Posts: 8,854
Words count: 1,597,451
Group: Super Moderators
Joined: Nov2008
Status: Offline
Reputation: 146
Experience: 859
Glory Points: 260
Medals: 11

Post: #2
RE: Cut spending or raise taxes?

Don't pay too much attention to quarterly figures. What matters is the progress from year to year.
Since you're running a classic state you don't really need that huge defense expenditure. Doing the pacifism reform will really help you vis-a-vis your debt, in just one quarter. You can use the action points you have to do reform propaganda, that lowers the required influence, in order to do the reform.
Cutting spending and raising taxes is not a good idea in principle. You should focus on outgrowing your deficit. Decrease the nominal interest rate and increase the money supply in each quarter. Do an income tax reform, if you choose to do the negative income tax, make sure your money supply is above the GDP. You can cut welfare and pensions, to bring them closer to the living cost, though that will hurt your popularity in the short term. As for taxes, it's good to focus fiscality on consumption, rather than on labor and business, though it depends on your goals as a regent. Cut the acquisition tax a little in order to stimulate work and do the same for capital tax, in order to stimulate business.
I'm also running a USA template and in this particular one, I'm going to handle the debt without any type of austerity.


https://www.patreon.com/SerbanVCEnache

This post was last modified: 31.07.2012 10:20 by Helsworth.

31.07.2012 10:17
Find all posts by this user Quote this message in a reply
shadow114
Junior Member
*


Posts: 3
Words count: 314
Group: Basic
Joined: Jul2012
Status: Offline
Reputation: 0
Experience: 10
Glory Points: 0
Medals: 0

Post: #3
RE: Cut spending or raise taxes?

That is exactly what I felt I should do. Thank you. In real world economics, at least, growing your economy past your national debt is usually a better option than fiscal austerity. My economy is growing fairly quickly, so hopefully I can "outgrow" my deficit soon.

31.07.2012 18:52
Find all posts by this user Quote this message in a reply
Helsworth
Heathen
****


Posts: 8,854
Words count: 1,597,451
Group: Super Moderators
Joined: Nov2008
Status: Offline
Reputation: 146
Experience: 859
Glory Points: 260
Medals: 11

Post: #4
RE: Cut spending or raise taxes?

Glad to be of help. Debt for the USA template is virtually not a problem.
Check out one the economic and budget stats of one of my past states, Junko

Taxes on capital 0.09 %
Acquisition taxes 2.03 %
Excise taxes 5.79 %
Tariffs 82.17 %

National debt -130,086.76 Bil. €
New indebtedness -22,342.54 Bil. €
Payment of interest -15,965.90 Bil. €
Nominal interest 23.27 %

Gross domestic product 37,661.67 Bil. €
Imports 1,866.39 Bil. €
Exports 4,706.35 Bil. €
Private consumption 21,827.22 Bil. €
Government purchases 4,690.74 Bil. €
Gross investment 8,303.76 Bil. €
Exchange rate 0.94 $ / €
Saving ratio 9.73 %


https://www.patreon.com/SerbanVCEnache
31.07.2012 19:01
Find all posts by this user Quote this message in a reply
Damon_Coburn
Unregistered


Post: #5
RE: Cut spending or raise taxes?

I seem to be having success by cutting spending and cutting taxes by the maximum allowed at the same time. I also lower interest rates and increase money supply. Inflation seems to remain surprisingly low. The economy expands and I generate more revenue, even though taxes are lower, and I end up with a substantial surplus. This will hurt your popularity though. Since, I indiscriminately cut everything by 8% twice except for special projects. Now that I have a surplus, I intend to gradually raise spending at pace with growth.

26.08.2013 22:22
Quote this message in a reply
Post Reply  Post Thread 

Possibly Related Threads...
Thread: Author Replies: Views: Last Post
  Negative effects of high deficit spending and high national debt? Kakatiya 3 2,432 19.11.2015 19:24
Last Post: Helsworth
  INFRASTRUCTURE AND "OTHER" SPENDING Damon_Coburn 2 1,715 26.08.2013 18:33
Last Post: Globaltom
  TAXES ON CAPITAL WHAT IT MEANS Damon_Coburn 1 1,574 23.08.2013 04:07
Last Post: StatlerNWaldorf

View a Printable Version
Send this Thread to a Friend
Subscribe to this Thread | Add Thread to Favorites

Forum Jump: