Tax system dynamics

What this model shows

Why a higher rate does not mean higher revenue, and why audit speed matters more than audit headcount. Both models run 10 years and 90 days respectively.

Assumptions built into it

• Evasion grows with the square of the rate, scaled by a sensitivity factor, and jumps above a 40% rate. It is capped at 85%.
• Each point of tax rate shaves 0.05 points off annual growth; growth is floored at −5%.
• The tax base compounds monthly; the run is 120 months from a base of 1000.
• VAT: inflow of new schemes is 50 per day and falls as automation and audit speed rise; manual capacity is 15 per day.
• VAT unit cost is 100 automated versus 200 manual; the run is 90 days from a stock of 1000.