I want to replicate the paper “Phased-in tax cuts and economic activity” by Christopher House and Matthew Shapiro but I find some problems while I try to solve the steady state. I checked more than twice the paper in order to discover any date or clue to answer but nothing happened. Seemingly, equations I wrote are ok, but when I run the Dynare, it said that ther a problem: a) Jacobian is not finite or NaN and b) STEADY: derivative of equation 2 with respect to variable K (initail value of K:0)
Please any help,
Phased-in tax cuts and economic activity.pdf (379 KB)
proof.txt (1.94 KB)
I noticed that your code mis-spelled “solve_algo” at the end. Also, your initial value for capital was huge; try it at 1 or 2. If you cant solve a model closed form, it’s usually safe to solve a simpler version and get a closed form solution, or solve the simpler one numerically and use those initial conditions if you cant solve the more complicated version directly. I’ve also noticed that, more often than not, errors are usually just typos – compare each equation letter by letter. They also have posted code, although it looks like they did some linear quadratic method by hand.
I hadn’t seen that paper before – surprising it was published in AER since it just applies an off the shelf neoclassical model to study tax policy!
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