I’m working on a model with tax rates, defined as parameters. I can analyze how the economy responds to different shocks under different values of tax rates using the simult_ function.
However, I don’t know how to change the tax rates during the simulation. What I want to do is things along the lines of “Increase tax rate starting nth period” or “Decrease tax rates if the value of X increases”.
Is there a way to do this? Should I have defined them as exogenous variables?
Which type of exercise do you have in mind? Is the change anticpated? Is it conditional on something, i.e. is
some type of endogenous feedback rule that agents in the model know about?
Thank you for your reply, professor.
I have two separate exercises in mind:
- Give some shock to TFP (or other variable) at T0, and change policy at T1 (or later) as a response. Check how the policy response changes the trajectory of the economy. There might be a very trivial way to do this, but I couldn’t find one.
- As you described, define some cyclical policy rule, such as “place taxes on capital proportional to its deviation from steady state”. Do similar analysis. If this is structurally so much different from the first case, I suppose I could do this manually outside Dynare, and input calculated values.
In context, I’d like to assume an economy is around its steady state at the beginning of 2020, gets hit by covid, and government takes some measures. I want to analyze what these measures did, what could have happened if they didn’t take these measures, and what would have happened if another policy mix was implemented, etc.