# Posticipated increase in taxation

Hi, I am a beginner with Dynare. I have a set of log-linearized equilibrium conditions among which the following fiscal rule: T=g + b. G follows an AR(1).
The shock is an increase in government spending. No problems so far.
But if now the increase in taxation following the increase in govt spending is posticipated by 4 quarters, I tried to write the new fiscal rule as: T(4)= g + b. At this point, when I simulate, it says that the rank condition is not satisfied cause I have too eigenvalues larger than 1 in absolute value and so I cannot have the impulse responses.
Where is my mistake?

I think

should be

`````` T= g(-4) + b(-4)
``````

because the first one stipulates a rule for E_t(T_{t+4})
Also, are you sure that this is the right budget constraint for the government? Isn’t the deficit from four periods before going to accumulate interest?

tankcw.mod (1.2 KB) tank_cw.mod (4.1 KB)
The first file is the baseline model where, as you can see, taxes increase today with govt spending shock and with yesterday debt. How can I modify this baseline model if taxes increase after 4 quarters from the govt spending shock? Note that I have tried also to use T= g(-4) + b(-4) but the IRFs did not change with respect to the baseline case…
The second file is the model with delayed tax rise that I should replicate but I did not understand the logic behind the codes… is there a simpler way to modify the fiscal rule rather than introducing a dummy variable?
Lastly, if I run this second file, IRFs are not computed and displayed. How can I do to have them displayed?
Thank you very much in advance.

I am not sure I understand. It seems Ricardian equivalence holds in your model, so the timing of taxes does not matter

Yes, it seems but Ricardian equivalence does not hold.

Figure b is what I should get with delayed tax rise.

What is the paper you are trying to replicate? You provided insufficient detail to understand what you are trying to do and where the problem is.

Cristiano Cantore, Lukas B. Freund: “Workers, capitalists and the government: fiscal policy and income (re)distribution” . This is the paper.
I have to replicate the results in this paper; I am able to replicate the baseline model, the problem is when there is a delayed tax rise as shown in Figure b above. In this latter case I am not able to get the same IRFs as in figure b.

Have you asked the authors for their code?