Tax collection simulation for poverty alleviation

This is a simulation of tax collection within the context of a particular supply chain, specifically using the example of an apple supply chain. While a specialized supply chain with its own unique token doesn't currently exist, the advancement of cryptocurrency and blockchain technology is gradually pushing us toward similar systems.

The simulation explores the potential impact of implementing a tax system within this innovative supply chain model. By using apples as a representative product, we can examine how taxes might affect the flow of goods, services, and currency within the supply chain.

As we move toward a more decentralized and tokenized economy, simulations like this become increasingly relevant. They help us understand the potential benefits and challenges of incorporating tax collection into these emerging systems, and how it could shape the future of supply chain management and economic transactions.

Can taxation of a supply chain meet everyone need?

Poverty

Poverty is something where people can't afford the basic things they need such as food even at equilibrium price. Its lack of money.

Variables

  • Total Population = 1000

  • People who are poor = 100 (10%)

  • People who are rich = 10 (1%)

  • Upper Middle class = 300 (30%)

  • Middle class = 590 (59%)

  • Prices

    • Currency Prices
      • 1 Token = Rs 50
      • Supply Constant = 50*1000 tokens
      • As supply constant, token price demand on right information to people
      • Tax needed = 1000 tokens (2% tokens)
    • 1 Kg apple = Rs 50
      • Equilibrium
      • Input cost = Rs 30
      • Quantity Demanded = 300
      • Quantity Supplied = 300
    • Tax (2% tax), 1 Kg apple = Rs 55
      • Quantity Demanded = 220
      • Quantity Supplied = 220
      • As now 1000 people will get UBI to only buy apple, quantity demanded will increase so the price
        • New quantity demanded = 600
        • New quantity Supplied = 400
        • Price of 1 Kg apple = Rs 80
      • As input cost is Rs 30, it will reach to equilibrium price of Rs 60
        • New Quantity demanded = 600
        • New Quantity supplied = 600

Elaboration

A description of a simulation or a model for tax collection and its impact on a supply chain and poverty alleviation.

Poverty Definition:

The simulation starts by defining poverty as a state where individuals cannot afford basic necessities like food, even when the prices are at equilibrium.

Variables:

  • Total Population: The total number of people in the simulation is set to 1000.
  • Poor, Rich, and Middle Class: Out of the total population, 100 people are defined as poor (10%), 10 as rich (1%), 300 as upper-middle class (30%), and 590 as middle class (59%).

Currency and Pricing:

  • Currency Prices: The simulation assumes a fictional currency where 1 token is equivalent to Rs 50. The total supply of tokens is constant at 50,000 (1000 tokens * Rs 50).
  • Tax Needed: The simulation proposes a 2% tax on the total token supply, resulting in a tax requirement of 1000 tokens.
  • Apple Prices: The price of 1 Kg of apples is initially set at Rs 50, which is the equilibrium price. The input cost for producing apples is Rs 30.

Tax Implementation:

  • Initial Equilibrium: Before the tax, the quantity demanded and supplied for apples is 300 Kg each, resulting in an equilibrium price of Rs 50.
  • Tax Impact: With a 2% tax, the price of 1 Kg of apples increases to Rs 55. This leads to a decrease in both quantity demanded and supplied to 220 Kg each.
  • UBI Impact: Assuming the tax revenue is used to provide a Universal Basic Income (UBI) to buy apple to all 1000 people, the purchasing power increases for the poor and lower-middle class. This increases the quantity demanded for apples to 600 Kg, while the quantity supplied remains at 400 Kg, pushing the price up to Rs 80.
  • New Equilibrium: As the input cost is still Rs 30, the price will eventually reach a new equilibrium of Rs 60, with a quantity demanded and supplied of 600 Kg.

Conclusion:

The simulation suggests that with a 2% tax and UBI, the supply chain can meet the needs of the entire population, including the poor, by ensuring that everyone has enough purchasing power to afford basic necessities like food. The tax collection and redistribution help alleviate poverty and create a more balanced economy.

Comment on simulation

The simulation you provided appears to be a basic representation of a supply and demand model with the introduction of a tax and Universal Basic Income (UBI) system. While the simulation is simplified, it seems to capture some key concepts and can provide insights into how tax and UBI policies might impact a supply chain and poverty levels. However, it's important to note that real-world economies are far more complex, and there may be additional factors and dynamics at play that this simulation does not account for.

Here's a step-by-step explanation and evaluation of the simulation:

  1. Initial Equilibrium:
    • Before the tax, the market is at equilibrium with a price of Rs 50 for 1 Kg of apples, and both the quantity demanded and supplied are 300 Kg. This implies that at this price, consumers are willing to buy, and producers are willing to sell exactly 300 Kg of apples.
    • The input cost of Rs 30 means producers are making a profit of Rs 20 per Kg of apples sold.
  2. Tax Impact:
    • A 2% tax on the total token supply increases the price of apples to Rs 55. This is a straightforward representation of how taxes can be passed on to consumers.
    • The increase in price leads to a decrease in both quantity demanded and supplied to 220 Kg each. This is a standard consequence of a price increase in basic economic theory.
  3. UBI Impact:
    • Assuming the tax revenue is used to provide a UBI specifically for buying apples to all 1000 people, it will increase the purchasing power of individuals, especially the poor and lower-middle class.
    • With the UBI, the quantity demanded for apples increases to 600 Kg, while the quantity supplied remains at 400 Kg, pushing the price up to Rs 80 due to increased demand.
    • This section of the simulation demonstrates how UBI can boost demand and potentially help those in poverty afford basic necessities.
  4. New Equilibrium:
    • As the input cost remains at Rs 30, the price will eventually settle at a new equilibrium of Rs 60, with a quantity demanded and supplied of 600 Kg. This is where the market stabilizes.
    • At this new equilibrium, producers are still making a profit of Rs 30 per Kg, and everyone in the population can afford the basic necessity of apples.
  5. Evaluation:
    • The simulation suggests that the tax and UBI system successfully alleviates poverty by ensuring everyone can afford food. This is a positive outcome and aligns with the goal of such policies.
    • However, it's important to note that this simulation assumes a perfectly elastic supply, meaning producers can instantly adjust their supply to meet demand. In reality, supply adjustments may take time, and there could be other factors affecting production, such as resource constraints or technological limitations.
    • Additionally, the simulation doesn't consider potential unintended consequences, such as inflationary pressures or changes in consumer behavior, which could impact the effectiveness of the UBI in the long term.
  6. Implementation Issues:
    • Implementing such systems requires Know Your Customer (KYC) procedures and smart contracts. By utilizing smart contracts, it can be ensured that the money given in UBI is solely used for purchasing apples.
    • Each supply chain presents its unique challenges, and implementing the system across every supply chain is both tedious and challenging, requiring time for experimentation and improvement.
  7. Wasteful Trade:
    • This system may generate wasteful trade, such as when money is given for buying apples when the person does not need apples. To address this issue, UBI tokens can be handed over to the individual, allowing them to purchase other goods while collecting a certain tax for the UBI given.
    • However, giving tax money for buying other goods can negatively impact production in the supply chain, so it needs to be permitted with certain rules. These rules could include using the money for staking for a specific period, such as few months or a year, instead of selling it in real-time.
  8. Freeloader Problem:
    • UBI for no work can also create a freeloader problem, so UBI should be released with some proof of contribution, such as creating positive externalities or contributing to the supply chain.

In conclusion, while this simulation provides a simplified representation of tax collection and UBI's impact on a supply chain and poverty alleviation, it does offer insights into how such policies might work in theory. However, real-world implementations would likely involve more complexities and require careful consideration of a broader range of economic factors and potential externalities.