Problem with feasibility constraint


I have this model in which public sector collects taxes (T). Every period it gives f*T as transfers and and “saves” the rest (1-f)*T where f>0. The amount saved is given as transfers next period (with interest). Like this:

x = taxwl;
transfers = (1-f)x + f(1+r)x(-1);
k = s + f

Now here’s the problem. I want to set a deterministic shock such that f=0. But what happens here, is that a part of capital kind of “disappears” so that the feasibility constraint ( y = k - (1-delta)k(-1) + c)
does not apply in period 2 (if the shock is introduced in period 1). The feasibility constraint is wrong exactly by f
x. I was thinking about introducing a separate fund that is alive for 1 period only to fix the problem. But it doesn’t work, as the agents also take all this into account. Anyone have any ideas how to go around this problem?


How do you set a deterministic shock such that f=0?

That’s exactly my question. I don’t know.

The usual way of…

var f;
periods 1:10;
values 0;

…is no good. I’m guessing I would have to tweak the model somehow, but I’m stuck.

Your timing seems to be wrong. Shouldn’t it e.g. be f(-1)*(1+r)*x(-1) as the savings share should be the one from last period.

Excellent. It works now! Thank you so much.