# Taxation of Fiat Money Using Dynamic Control

## Abstract

**:**

## 1. Introduction

## 2. System Dynamics Modeling

## 3. A Parsimonious System Dynamics Model of the Public Finance System

#### 3.1. Financial Operations

#### 3.1.1. Interest Rate

#### 3.1.2. Money Supply

#### 3.1.3. Perceived Deficit

#### 3.1.4. Public Debt

#### 3.2. The Macroeconomic System

#### 3.2.1. Income

#### 3.2.2. Inventory

_{1}(desired capital/Capital), f′

_{1}> 0

_{2}(inventory/desired inventory), f′

_{2}> 0

#### 3.2.3. Capital

= (desired capital/life of capital)/(Interest Rate/normal interest rate)

#### 3.3. Performance Measures

#### 3.3.1. Economic Growth Rate

#### 3.3.2. Relative Money Velocity

#### 3.3.3. Market Interest Rate

#### 3.3.4. Deficit Finance GDP Parity

#### 3.3.5. Public Debt GDP Ratio

#### 3.3.6. Inflation Tax Rate

## 4. Model Behavior

#### 4.1. Remedial Open Market Operations for Regulating Money Supply

#### 4.2. Remedial Taxation to Regulate Money Supply

#### 4.3. Combining Remedial Open Market Operations and Taxation

#### 4.4. Sensitivity of Policy Parameters

## 5. Discussion

#### 5.1. All Taxation Can Be Remedial

#### 5.2. Model Limitations and Future Research Agendas

## 6. Conclusions

## Funding

## Institutional Review Board Statement

## Informed Consent Statement

## Data Availability Statement

## Conflicts of Interest

## Notes

1 | A product of isee systems, Lebanon, NH, USA. |

2 | Ithink and Stella are trademarks of isee systems, Inc. Vensim is a trademark of Ventana Systems, Inc. Powersim is copyrighted by Powersim Software, AS. |

3 | See any macroeconomics text, e.g., [32] Barro RJ. Macroeconomics: a modern approach. Mason, Ohio: Thomson South-Western; 2008. xix, 492 p. p.(Barro 2008) |

4 | Since interest rate is often changed by a central bank on basis of many considerations, and not determined by the market, the observed phase relationship between interest rate and velocity of money is sometimes construed as the former causing the later. |

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**Figure 4.**Model simulation with taxes abolished and all public expenditure met through deficit finance, showing economic growth with declining money velocity.

**Figure 5.**Impact of regulating money supply through open market operations only, with taxes abolished and bond issue controlled by deviation from normal market interest rate.

**Figure 6.**Impact of regulation of money supply through remedial taxation only, controlled by deviation from normal market interest rate.

**Figure 7.**Combining deficit spending with open market operations and remedial taxation—both controlled by deviation from normal market interest rate.

**Figure 8.**Sensitivity of policy parameter max inflation tax rate in the final policy combination of Section 4.3.

Process | Icon | Explanation |
---|---|---|

Stock | Accumulation or integration of flows linked to the icon. | |

Flow | A rate of change or a derivative of a stock. Empty arrowhead indicates source of flow. Must be connected to a stock. Cloud at one end represents unlimited source or sink. | |

Converter | Algebraic function of stocks, other converters, and constants. | |

Graphical function | Graphically represented function of another variable in the system. | |

Causal link | Information relationship between two variables. |

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Saeed, K.
Taxation of Fiat Money Using Dynamic Control. *Systems* **2022**, *10*, 84.
https://doi.org/10.3390/systems10030084

**AMA Style**

Saeed K.
Taxation of Fiat Money Using Dynamic Control. *Systems*. 2022; 10(3):84.
https://doi.org/10.3390/systems10030084

**Chicago/Turabian Style**

Saeed, Khalid.
2022. "Taxation of Fiat Money Using Dynamic Control" *Systems* 10, no. 3: 84.
https://doi.org/10.3390/systems10030084