How should we tax internet countries?

Here's what we can learn from Japan, Germany, and DAOs.

This is a guest essay by Madison Karas for Post Nation, seven writers exploring a world after nation-states. Support the project by collecting the series as a digital or print pamphlet. 👇🏻

Take any online community you are part of and imagine it growing into a nation. Your Facebook group, your Discord channel, or a Substack community you’re a part of.

Imagine it built a government and economy and defined its own citizenship criteria. Your existing population could have default citizenship, dual citizenship with nations that they are already a part of, or immigrate to your nation from the existing one they are from. You all share a citizen identity that you chose and define together, and as you determine how the nation should operate and what you can offer citizens through your government services, you eventually reach the question: What do citizens offer the nation in return?

The short answer, for many territorial nations, is quite literal: taxes.

Comparatively, then, for a digital nation, the question becomes a practical one: How do you design a contribution model that sustains mutually shared digital public goods, offers legitimate incentives for participation, and keeps people genuinely engaged rather than just compliant?

For the past several months, I’ve been an inaugural fellow with Plumia, an innovation lab on global mobility, investigating this. The fellowship supports visionary writers, artists, researchers, and musicians seeking to explore the future of digital civilization, network societies, and human flourishing. My background didn’t come from existing “network state” worlds of theory, but from experience in community management, journalism, and product management, where I’ve learned that the question of “how to sustainably fund a public good that exists online” is one shared across many domains.

Over the course of this three-month research period, I conducted a descriptive case study review of contribution models for digital goods, spoke with a few experts on them and also those within digital public goods and interoperability, and completed a literature review to generate a proposal for what a tax model in a digital nation, for, in Plumia’s case, digital nomads could look like.

What does a tax model look like when there’s no existing territory to enforce it, no default citizenship to draw from, and no legacy infrastructure to inherit? My hypothesis rested on the assumption that, while a digital nation doesn’t yet exist, lessons can be learned from the architecture of what does.

The biggest starting point was differentiating between existing “voluntary” contribution models that people choose to participate in, “mandatory” models that are imposed on people, and models that combine elements of both. If a digital nation has voluntary citizenship, doesn’t that imply voluntary contribution? If it wants to fund real public goods, doesn’t it need enforcement?

The cases assessed quickly showed that the enforcement mechanism matters more than the types of goods funded—voluntary models use reciprocity and exclusion: if you don’t participate, you lose access to the community’s benefits. Mandatory models use legal obligation and default allocation. Both can sustain “public” goods. This raised a leading question: which aspects of a digital nation’s governance, access, and services could be mandatory, and which could be voluntarily allocated on top of that? More on that later, but first, looking at the cases, some lessons about design surfaced.

Gitcoin and Optimism Collective are the most structurally innovative models I looked at. Gitcoin uses quadratic funding, a mechanism where individual contributions are matched by a pool based on the number of contributors, not the size of donations, which amplifies small community support and theoretically reflects genuine collective preference. Optimism Collective takes a retroactive approach: rather than predicting what’s valuable, it distributes funding after the fact, based on demonstrated community impact.

Both are genuinely interesting experiments in funding public goods without central authority, but both have struggled with the same failure modes. The definition of “public good” turns out to be load-bearing, and neither community resolved it cleanly, leading to areas of vulnerability and gamebility. In Gitcoin’s governance forum, I asked participants directly about this. One delegate, Gonna.eth, who has been involved with Optimism since its inception, put it plainly: “You need to define ‘public good’ and we wasted years without guidance to come up with a definition.” Another participant, castall, a DAO steward at Gitcoin, described the desire to move away from commercial framing altogether: “I would like to move away from being rigid about what is a ‘public good’ and instead judge what is important to humanity as a metric that is orthogonal to ‘does it have a business model.’”

Existing tax models, like Germany’s Rundfunkbeitrag, use a flat household fee that funds public broadcasting regardless of whether anyone watches it. Denmark’s dual-portfolio model combines direct government subsidies to news publishers with a basic data program that funds shared digital infrastructure, and both operate inside tax systems with functioning enforcement mechanisms. These models have what voluntary ones don’t: more predictable, stable revenue that doesn’t depend on continued engagement or market conditions. But they’ve earned a different set of problems.

In Germany, citizens have mixed reactions to enforcement, particularly for a service they may feel doesn’t serve them. The legitimacy of mandatory contributions to shared public goods isn’t automatic—it has to be earned and maintained through demonstrable impact. Denmark’s model works partly because it operates inside a high-trust state, but you can’t assume that condition when you’re designing a new institution from scratch.

The “hybrid” cases, which often involve aspects of both voluntary and models, are where the most useful design lessons lived, including the most instructive failure.

In one example, Furusato Nōzei, Japan’s hometown tax donation system, sits inside Japan’s mandatory tax infrastructure but adds a voluntary allocation layer: citizens can direct a portion of their taxes to municipalities of their choice and receive a tax deduction in return. In theory, this gives citizens agency over where their contribution goes while keeping the mandatory base intact. In practice, it became a shopping program. The gifts municipalities offer to attract donations (Kobe beef, premium seafood, luxury goods), became the primary draw, crowding out the civic motivation the system was designed to nurture.

Anthony Rausch, a professor at Hirosaki University who has written extensively on the program described the dynamic directly: “Everyone wants to get Kobe beef from some municipality that is known for quality beef... but that is simply allowing the individual to determine the winners while rewarding the advantaged places and ignoring those places that are less endowed.”

He also offered the sharpest characterization of what Furusato Nōzei reveals about the design challenge: “What sets Furusato Nozei apart is its hybrid nature: part tax policy, part crowdfunding platform, part loyalty program. As such, it blurs the boundaries between citizen, consumer, and taxpayer, offering a glimpse into the future of public finance in an era of personalization and choice.”

Drawing on these cases, I think digital nations should distinguish between infrastructure goods, foundational services that enable national operations, and service goods that could be avenues for citizens to have a meaningful say in funding. This would split a tax model into a two-tier structure, requiring citizens to participate in both tiers.

Tier 1: Mandatory Infrastructure

Tier 1 covers services essential for basic participation in the digital nation: services that exhibit strong network effects and whose exclusion would undermine core national functions. The qualification tests for something to belong here are:

• Universality test: Is this service required for basic citizenship participation?

• Network effects test: Does value increase substantially with universal adoption?

• Exclusion harm test: Would excluding non-contributors undermine the good’s core function?

• Infrastructure test: Is this foundational to other services?

What that looks like in practice: identity and authentication systems, security protocols, governance infrastructure, interoperability standards, compliance and enforcement mechanisms, and data collection.

In your digital community nation, this tier could look like charging citizens a flat annual fee or income-based contribution, which would give your community a stable, predictable operational cost. This would help you cover things such as the platform you operate on and host, the upkeep and processing of identity statuses, and funding the core governance and offices capability.

Tier 2: Citizen-Directed Allocations

Tier 2 covers services that enhance citizenship but aren’t essential for basic participation. All citizens make a mandatory contribution, but direct it based on their own priorities. This is the design move that distinguishes the framework from Furusato Nōzei: keeping contribution mandatory while making direction a citizen choice prevents the consumerism trap without removing agency.

Qualification criteria for Tier 2 services:

• Excludability test: Can access be limited to those who fund it without undermining core functions?

• Preference diversity test: Do citizens have genuinely varying preferences for this service?

• Competitive provision test: Could multiple providers deliver similar services?

• Mission alignment test: Does this connect to the digital nation’s stated values?

• Innovation potential test: Does this allow experimentation?

In your digital community nation, these tier programs could serve as a collective identity, with a set amount or percentage of taxes dedicated to them. In Plumia’s case, asking digital nomads about their needs yielded ideas for services such as visa support and travel coordination, VPN services and secure communication tools, language training and skill development, healthcare navigation, family support resources, experimental community-driven initiatives, and cultural goods.

The governance model for Tier 2 could include review boards to establish approved categories, transparent qualification processes with citizen input, and impact assessments. Services that receive insufficient directed funding can be suspended or restructured, which creates accountability without removing the baseline civic contribution. Like existing public services, there could always be a better market alternative for purchase, but the government could serve a role in offering these types of services subsidized, customized, or more accessible to the population.

The two-tier model is designed to do three things: first, separate what must be universal from what can be individualized, ensuring the universal component is never compromised; second, embed revenue generation into the system’s identity and infrastructure services, rather than depending on ongoing enthusiasm or market conditions; and third, give citizens a meaningful role in allocation decisions, transforming tax contribution from a passive obligation into an active expression of citizenship.

The deepest pattern across all the models studied is this: the ones that endure are the ones that connect individual participation to collective meaning. Gitcoin and Optimism struggle when the definition of collective meaning is vague, Rundfunkbeitrag struggles when citizens don’t feel the collective benefit, and Furusato Nōzei struggles when the individual benefit swamps the collective purpose. Finding a path for a working model that makes this connection between contribution and benefit legible and real will be a continued obstacle in the design of a digital nation governance and taxpayer program. None of it works below some minimum viable scale, either; the threshold needs to be named, not assumed.

A digital nation is an unusual opportunity. It gets to build the connection between contribution and collective benefit from scratch, without inheriting the legacy infrastructure, historical debt, or institutional inertia of a territorial state. You still have to do the slow, careful work of defining what you’re funding, who decides, and how the system sustains itself when enthusiasm wanes and circumstances change. And that’s not a limitation of the digital nation concept, it’s the work. And it’s the same work that anyone building a sustainable “public good”—a newsroom, a cooperative, a commons—eventually has to do.