Eli5 Why do microstates (Liechtenstein, Monaco etc) have such high GDP per capitas?
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First off there is no need for an expensive military. A single company is going to do as much against a real army as a single squad so why bother with even a company? That saves a fair chunk of taxes and workforce which can more effectively in the economy. Similarly there is less need to invest in infrastructure like highways or railroads. When most destinations are within walking distance you do not even need a car. As for long distance transport you only need to connect to the boarder and have the neighboring country spend all the money building the infrastructure.
This is just the start though. We have established that micronations have less government expenses per capita which means less tax and more money being circulated in the economy. But that lower tax rate then make it an attractive place for people wanting to avoid taxes. If a wealthy French business man wants to avoid taxes he can just move from say Nice to Monaco and only pay half as much tax. But this have the effect of increasing the Monaco GDP and even tax income without actually changing anything. In fact having the businessman move to the city means that he spends money building a house and hiring servants and such which increases the economy. Suddenly the wealth generated by the labor of French workers are being spent in Monaco instead of France. This also allows Monaco to reduce their tax rates even further as they get more tax income. And that attracts even more people who want to avoid paying tax.
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