Policy scenario

General DSGE Modeling
1

Dear all,

I’m working with a DGE model in which I want to simulate the VAT cut by 0.6% of GDP ceteris paribus.

In order to simulate this policy scenario, I have to find x:

VAT_new =VAT_old*(1-x)

such that (revenue_new - revenue_old)/gdp = 0.6. Or written differently
(revenue_new+cutgdp-revenue_old)/gdp =0.

My question is how to calculate x?

Best,J

2

So you want to compute something that depends on the results of the simulation, i.e. a cut of 0.6% of the new GDP? If so, this is a fixed point problem in the simulation that most probably requires running a solver on the simulation itself to find x.