# Step 267: where the productivity gain goes, under the new closures

**Why.** Two claims in the results chapter came from runs under the original stop rules:

- the four wage regimes of step 247;
- the "fiscal channel" table of step 196, which compared 64 pairs of paths differing only in
  pass-through.

The second referee report found that under the step-248 closures, the claim "the fiscal channel
holds when the gain goes to wages" fails. Here both analyses are re-run on the 144 distinct cases
per regime, under two closures:

- the main closure of step 266 (debt cap 90%, retained earnings, capped overdraft, book-value equity);
- the step-248 closure, for comparison.

Generated by `scripts/wage_regimes_v267.py`; archived in `data/processed/wage_regimes_v267.json`.
Illustrative; not a forecast.

## Preservation by regime (144 cases each)

| Regime | Price level at end | Step-248 closure | Main closure | Renters / outright owners, preserved of completed (main) |
|---|---:|---:|---:|---:|
| Gain to prices (deflation) | 0.80 | 52 (36%) | 36 (25%) | 5 / 9 of 20 |
| Half to wages, half to prices | 0.90 | 79 (55%) | 49 (34%) | 9 / 9 of 20 |
| Gain to wages (stable prices) | 1.00 | 86 (60%) | 49 (34%) | 9 / 9 of 20 |
| Gain stays in profits | 1.00 | 86 (60%) | 50 (35%) | 9 / 9 of 18 |

"Preserved" means that both displaced cohorts keep at least 90% of their initial consumption in every
year. Shares are of all 144 cases. Failures under the main closure are all at the overdraft limit
(24–36 cases per regime).

**What it shows.** Once prices are stable, it does not matter whether the gain goes to wages or stays
in profits: 49 against 50 preserved cases. **The harm from passing the gain on is a deflation effect,
not a fiscal channel.** The same holds for renters. Their extra loss (5 of 20 against 9 of 20 for
outright owners) disappears when the price level is stable.

## The fiscal channel, re-measured

Each regime is compared with the profits regime, case by case, at year 10 (144 pairs, main closure).
"Room" is real revenue less existing spending and interest. The last three rows are in points of
base-year output (= 100).

| Year 10, vs profits regime | Gain to prices | Half | Gain to wages |
|---|---:|---:|---:|
| Real revenue, median change | −0.2% | −0.5% | −0.8% |
| Room for benefits, median change | −14.0% | −18.5% | −21.0% |
| Room, change in points of output | −0.65 | −0.48 | −0.42 |
| of which: revenue | −0.04 | −0.11 | −0.18 |
| of which: real interest on existing debt | −0.56 | −0.33 | −0.12 |

The room for benefits is small: a median of 7 points of output in the profits regime, and negative
in a quarter of cases. So a change of half a point appears as a large percentage. In points:

- **Under deflation, almost all of the loss is interest.** Interest on existing nominal debt costs
  more in real terms when prices fall. Revenue hardly changes.
- **When the gain goes to wages, the loss is small (0.4 points) and mostly revenue.** Profits taxed at
  25%–35% become wages taxed at the wage rate.

The step-196 table ("a small fall in revenue becomes a large cut in what can be paid") is right in
percentages and misleading in substance. The text will report points and attribute the effect to the
real cost of nominal debt under deflation.

## Tax reach under the main closure

Under the main closure, full tax reach no longer helps in every regime. In the profits regime it
preserves 22 cases against 28 with half reach. The reason is the government rule of step 248: a
government that collects more than it spends hoards the surplus. Household demand falls, unsold
output becomes investment, and firms hit the overdraft limit (step 266). This is an artefact of the
asymmetric fiscal rule. Step 268 replaces the rule.