Libertarianism on the UK Virtual Economy

The Virtual Economy model has been online for quite a while. I remember playing with this years ago. Since we now have a libertarian blog, I thought I'd give a go at it once again and show you the results. I try to apply as much capitalism as I can. Here are my choices for each category (in the advanced model) :

* Income tax : as low as the model permits, with the highest brackets. That means 6%, 10% and 22%.
* Income tax allowances : as high as the model permits.
* Macroeconomy : Unfortunately, the model does not allow for stabilization of the monetary supply or controlled deflation, so I choose "keep inflation at base level". I halve spending on health care, education and defense (assuming that the first two will be covered by private systems and charter systems, and the latter reduced to self-defense).
* National Insurance : as low as the model permits, with the lowest brackets.
* Indirect taxes : abolish duties on beer, spirits, wine. VAT abolished. No change to petrol, tobacco, fuel tax and car tax.
* Benefits : all children-related benefits are reduced as much as the model permits. Working tax credit is maximized. Pension stays the same (it's not the old people's fault if they lived in a crappy system). Tax credits withdrawal rate is set at 10% (to maximize the number of families who have access to the credits - the lower the %, the less the credit tapers off as you go in higher incomes).

Aaaand... run model !

And you get great results. For one thing, all the family scenarios save more money except for the two unemployed parents one, from 1k more (in low-income families) to 47k more (in the case of two employed parents making 100k a year). As predicted, poor families benefit greatly from the abolition of the sales tax, while rich families benefit greatly from the abolition of the income tax.

The government also benefits greatly from this change - tremendous growth and lower spending means more money :



Unfortunately, because of the stunning growth we're stuck with murderous inflation :



But the GDP per capita skyrockets, even adjusting for inflation, which seems to indicate that this inflation is probably entirely caused by the rise in salaries coupled with a growing monetary supply :



And we're going to need major immigration to fill out all these new jobs, otherwise the economy is gonna stagnate pretty fast :



All in all, I think this would be a rather rude shock treatment, and that progressively introducing free market measures would probably be better. But I think living in such a society would be pretty good, all things considered.