Shock interpretation for tax multiplier

Stochastic simulations
1

Hello,

I’m new to DSGE models and to Dynare and I’m trying to understand how to interprete the impulse-response graphs for a particular shock.

The authors set a shock to labor tax in the following line:

shocks;
var e_l;
stderr 1;
end;

I am interested in getting an impact tax multiplier (Delta Y / Delta Tax), when looking at the graphs. I see that Tax has dropped down until -40 and Output has increased by 0.08. My problem is that I don’t know the units of those changes. Does anyone has any idea?Thank you in advance.

Dynare code:
https://www.dynare.org/wp-repo/dynarewp036.mod

Paper:

halp
halp1127×507 28.9 KB

2

The paper log-linearizes everything, so the IRFs are in percentage deviations from steady state. A 40% drop in taxes (not percentage points) causes an 8% increase in output. Given TAXss = 0.34;, this is a 14 percentage point drop in taxes.

1 Like
3

Thank you so much Professor!