So, Province A is projected, by Leaf, to have produced goods etc. such that if Leaf went and levied taxes at whatever rate, Leaf would take in 1 million ryo.
In previous years, Leaf would have sold a daiymo the right to collect those taxes for 950k ryo. The daiymo collects ~1 million ryo and therefore makes 50k.
This year, the production of Province A stays the same, but Leaf now wants to collect 10% less money: 900k ryo. We probably cut the daiymo the same deal: we sell them the rights to collect those taxes for 850k, so if they collect taxes honestly, their actual income is unchanged. However, they could very easily claim to the villagers that the tax rate is unchanged, collect 1 million ryo, and instead reap a profit of 150k ryo.
The concern is how to stop them from doing that given that they have effectively absolute control over the individuals who collect the tax. If they're honest, they're literally unaffected, but they have plenty of incentives to be dishonest.
I think that we should make it known that random audits will occur and anyone found to have taken advantage of the villagers whose tax rights they purchased will be stripped of their daiymoship (daiymohood?) and then tried and convicted of treason. Following this, they'll be paraded around the provinces both to send a warning to other daiymos and to educate civilians on the new tax laws, and then executed.
Close. The main difference is that Leaf's rate is based on the expected surplus.
Hypothetically, suppose Province A has 100 civilians, each of whom make 10,000 ryō of surplus every year. Leaf then says that Province A should generate 1,000,000 ryō of surplus per year. Leaf then sells the local daimyo a contract to administer the land and collect taxes from it. Leaf sets its tax rate at 95%, so it sells the contract for 950,000 ryō. The daimyo then has the right to do essentially whatever they want within Province A for a year, so long as they obey the orders of any Hidden Leaf ninja and don't conspire against the interests of Hidden Leaf.
Typically, the daimyo would then collect 990,000 ryō of taxes and put 950,000 ryō towards buying the next year's contract. The daimyo saves 40,000 ryō for their own living expenses (buying their essential goods and services, paying soldiers, tax collectors, servants, etc), and each of the 100 civilians in Province A keeps 100 ryō after surplus.
In a good year, Province A might generate 1,300,000 ryō of surplus, in which case the daimyo may collect 1,200,000 ryō, leaving 1,000 ryō per civilian after surplus and enriching the daimyo by 250,000 ryō.
In a bad year, Province A might generate 700,000 ryō of surplus. The daimyo would then collect all of it, and to buy the next year's contract, he would need to pay 250,000 ryō from his own coffers.
This system has a few benefits for Leaf:
- Leaf has to do basically nothing. They sell the contract, they earn their money, then the nitty-gritty is handled by someone else. Leaf doesn't need to administer to the land, make laws, or collect taxes.
- Leaf doesn't have to assess or collect taxes in kind. Instead of having to figure out what every local trade good is worth, they can delegate the issue of turning local goods into gold to the daimyo.
- Leaf retains formal ownership of the land. There is no legal ambiguity about who is in charge -- it's exclusively Leaf that is deputizing the daimyo with parts of their land.
- Leaf is insulated against bad harvests. Even in bad years, Leaf retains all the money and buying power, and it's the daimyo that are on the hook.
- Leaf can extract further profit from this system, such as when...
- Conducting espionage between daimyo jockeying for good contracts.
- Escorting tax collectors through dangerous land.
- Ousting a daimyo that could not pay the contract fee on behalf of the daimyo that plans to take the land over.
- The daimyo have an incentive to improve their land, as it makes it easier for them to meet the contract fee and increases their income. Of course, eventually Leaf will survey the new situation and increase the expected surplus of the land, meaning that the daimyo have an incentive to continually improve their land.
- In complicated situations such as cities, where the productivity of one civilian is hard to measure (as a merchant's income is not as reliable as a farmer's), Leaf has an easy solution -- have a court of multiple daimyo and auction the contract between them. Each daimyo bids according to their best information, meaning that Leaf doesn't need to investigate deeply in a city to understand how much money will be made. Instead, daimyo trying to acquire the contract will bid above any price that's too low.
However, this does have the obvious problem that if Leaf sets its tax rate at 85%...
- Leaf sees less money that goes to the clans and ninja, but...
- The daimyo of Province A only sees that the contract is discounted to 850,000 ryō instead of 950,000. Without any further details, this changes their 40,000 surplus into a 140,000 surplus, while the civilians stay the same.
- Ideally, the daimyo goes from, (e.g.) 40,000 to 60,000 ryō, while the civilians go from keeping 100 ryō to 900 ryō apiece.
However, as pointed out, this is nontrivial when the default terms of the contract are "pay this fee and you can do basically anything you want on the land". At present, there is no conception of "taking advantage of your villagers," since the whole point of buying the contract and being the daimyo is so that you can take advantage of your villagers.
Aside: this is not a word of QM, as this post has not been vetted by the other QMs. I'm happy enough to engage with this, but it's rather draining for the others to get mired in the math and economics, so this is just my best attempt at building out a model. I'm confident that things would change if we actually dove into this in-depth, but that would probably kill a bunch of the other cool stuff we have coming. Instead of getting deep into the math, I would encourage you to focus on the high-level question: When you lower your tax rate, how do you keep your middlemen from pocketing the difference, when the middlemen are primarily paid by letting them pocket the difference?
I suspect that there are already procedures in place to deal with shitty daiymo; whatever punishment falls under 'treason' is probably pretty bad.
Daimyo that fail to make their contract fee or that are destructive to the land (which, at the end of the day, belongs to the Hokage and is only being loaned out), have their contract auctioned off to other local daimyo that may want to expand their domain. Usually, the damages are collected from the daimyo's coffers or liquidated possessions.
Daimyo that conspire with other Hidden Villages or missing-nin are killed, generally painfully.