Dear Dynare users,
I have a (probably) simple question regarding the computation of welfare effects in Dynare. I’ve searched the board already but couldn’t find a clear answer to my question.
If I want to compare different policy rules (e.g. taxes) with respect to their welfare implications, how can I use Dynare to compute the welfare under different scenarios and how to interpret the results in terms of consumption?
From what I got so far, I include a recursive welfare representation of the form:
W = Util(c)+beta*W(+1)
into my Dynare program (find an example with distortionary income taxation attached). According to the board, this gives me the unconditional welfare of the representative household in a given scenario.
Now if I want to compare this to a second scenario, I rerun (or loop) the program with a changed tax rate where I again compute the approximated theoretical mean of the welfare measure.
Can I just use these two computations of W and compare the relative welfare in both scenarios? Or how should I implement this? How is the interpretation of this measure?
Furthermore, if I include endogenous labor supply into the model, this should be reflected in the utility function, how does this affect the interpretation of the resulting welfare?
rbc_inctax_welfare.mod (768 Bytes)