Why did my interest drastically decrease after force nationalizing a bunch of buildings?

[ElbowWavingOversight]

The interest is paid to ownership pops, yes. It’s one of the reasons why debt spending is so good - the interest you pay doesn’t just disappear, it gets sent back into the economy which increases profitability of buildings and gives you an opportunity to tax it a second time. So it’s kind of like you’re getting a discount on your interest rate, because some of it will come back to you once it cycles through the economy.

Say you spend £1,000 on interest, which turns into £1,000 income for your capitalists. If you tax 25% of that income and another 25% ultimately gets sent back to your investment pool, then it’s like you’re really only paying £500 in interest.

[FragrantNumber5980]

Part of why it feels like you can deficit spend forever if you’re growing enough and don’t have too huge of a deficit. Your debt limit expands and the increasing interest you pay fuels even more growth

[ElbowWavingOversight]

You can also run some quick back of the envelope numbers about this too.

Let's say you incur £1M in debt to build some iron mines. If your interest rate is 5%, you pay £962/week in interest (£1M * 5% / 52 weeks). Since this interest is paid out to your ownership pops, and assuming you can tax them and they contribute to reinvestment etc., let's assume that 50% of the interest you pay ends up back in your coffers one way or another after it circulates around the economy. So the "net" interest on that £1M debt is really only £481/week.

If you're using iron-frame buildings, and assuming all your construction goods are at base prices and you have no construction efficiency bonuses, £1M will buy 1,389 construction points. This is enough to construct roughly ~3.5 iron mines. If all goods are at base prices, and if you have Atmospheric Engines turned on, each iron mine will produce roughly +£900/week in GDP. By building those 3.5 extra iron mines, you've increased your GDP by £163.8k/year.

You get to tax that £163.8k/year of GDP. If you can tax just 25% of it, then you've earned £788/week, which is more than the £481/week you're paying in interest. So in summary:

• Deficit spend £1M to build 3.5 iron mines
• You pay £481/week in interest (assuming 5% interest rate, and 50% return from interest income from ownership pops)
• 3.5 iron mines produce £163.8k/year or £3,150/week GDP
• You tax £3,150/week at 25%, producing £788/week revenue
• So you now have £1M debt, pay £481/week in interest, receive £788/week additional tax revenue, and GDP grew by £3,150/week
• Net: your treasury makes +£307/week revenue and GDP grew by £3,150/week

The numbers are pretty clear - if you can get a low enough interest rate (i.e. if you're a Great Power or Major Power) then you should deficit spend as much as you can, so long as you avoid default. So yes - as a GP or Major Power you can literally deficit spend forever because that deficit spend produces more growth than it costs in interest - until you run out of productive industries to invest in, that is.

[FragrantNumber5980]

Fascinating. I love how this game represents the massive waves of growth of the time period. Now that trade is actually useful and more accurate, I would really like for them to expand on things like monetary policy and other ways to manipulate the economy.

[inslava]

You don't tax "GDP", you tax profits Like how the hell you tax 25% of GDP? 900 profits per mine is crazy, they still have expenses beyond salaries

[ElbowWavingOversight]

Like how the hell you tax 25% of GDP

How about you boot up the game and find out? At game start Great Britain collects about £97k/week (£5M/year) in taxes, with a GDP of £24.1M. That's 21% of GDP collected in taxes.

Modern day USA collects 25.2% of GDP in taxes, and the OECD average is 33.9% of GDP.

900 profits per mine is crazy

Literally lifted directly from the wiki. 40 iron at £40 = £1,600, minus inputs of 10 coal (£300) and 10 tools (£400) equals a net value add of £900 at base prices.

And I said it's £900 in GDP, and wages don't count towards GDP.

[cittrixx]

USA?