Hi all,
when I run perfect foresight exercises I notice that the variable wrt I specify the transition (from an initial steady state with no tax to a final one with a tax>0) jumps in the second period and remains constant while all the other variables adjust dynamically. In the same way, Ramsey problems give me a Ramsey steady state and I can compute optimal responses to shocks wrt that optimal steady state, if I have not got it wrong.
My question is: is it possible in dynare to get a dynamic optimal tax, as it is done in papers like Barrage (2020) for optimal dynamic carbon taxes?
I should couple a perfect foresight exercise to have a transition, with the arrival steady state being the one from the Ramsey problem and compute for each time period the wedges wrt to a trasnsition arriving at a steady state without a tax?
Thank you
Why don’t you simply compute the fully optimal Ramsey tax policy?
Can this be handled in a planner_objective/ramsey_policy setup? By doing this, I only get a Ramsey steady state. Provided that the tax is not constant, how can I obtain the full Ramsey plan, which is basically a time series for the tax?
It should be. If you have an objective, you can have Dynare compute the optimal tax schedule (which becomes an endogenous variable).
trial.mod (7.0 KB)
trial_steadystate.m (2.5 KB)
findsstrial.m (1.5 KB)
This cods runs, but it does not give me a full ramsey plan; if I complement the Ramsey block with a simul() command, or a perfect_foresight set up to make the model economy converge to the optimal steady state, I do not obtain a real dynamic tax schedule, but just an arbitrarily long series of steady state allocations (so a flat line for the tax, set at the Ramsey steady state level); that’s basically my problem. How to deal with it in dynare?
But what is the transition experiment you have in mind?
Dear Professor,
it is not necessairly a transition; I was thinking about doing it as a transition exercise but maybe it is not the appropriate setting.
The planner maximises lifetime utility under resource constraints, implementability constraint and law of motion for state variables and I am trying to obtain the full Ramsey plan through which the planner’s allocation can be decentralised as a competitive equilibrium in each time period.
It is a kind of dynamic optimal taxation problem as in Barrage (2020), equation 3.1 in her paper is an optimal dynamic tax schedule. I am wondering if it is feasible in dynare
Thank you
I currently don’t have access to that paper. But I don’t understand the exercise you have in mind. Dynare will compute the Ramsey taxation plan, but unshocked the system will simply stay at its steady state.