' Fifth Experiment: A permanent decrease in the corporate tax rate

' Before running this program, run first REEs_mod so as to create a workfile and a baseline solution

' This program generates figures EXP-5.A to EXP-5.I discussed in the Appendix

smpl @all

' Store original value of shocked parameter to baseline
genr theta_f_0 = theta_f

' Decrease the corporate tax rate permanently
smpl 1960 @last
theta_f = 0.20
smpl @all

' Select the second alternative Scenario 5

REEs_mod.scenario(n, a="_5") "Scenario 5"

' Set simulation sample
smpl 1947 @last

' Solve the model for the current sample

REEs_mod.solve(i=p)

' Store shocked value to scenario
genr theta_f_5 = theta_f

' and get back shocked variable to its baseline value
theta_f = theta_f_0

' Creates charts from simulated variables

' Creates the chart in Figure EXP-5.A
smpl 1955 2050
graph exp5a.line ((w_5-w_0)/w_0)*100 (((w_5/pd_5)-(w_0/pd_0))/(w_0/pd_0))*100 ((pd_5-pd_0)/pd_0)*100
exp5a.options linepat
exp5a.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp5a.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp5a.setelem(3) lcolor(red) lwidth(2) lpat(3)
exp5a.name(1) Effect upon nominal wages
exp5a.name(2) Effect upon real wages
exp5a.name(3) Effect upon prices
exp5a.addtext(t,just(c),just(c)) Figure 5.a: Effect upon real wage rate, following a permanent decrease in the corporate tax rate

show exp5a

' Creates the chart in Figure EXP-5.B
smpl 1955 2050
graph exp5b.line (i_k_5/i_k_0-1)*100 (y_k_5/y_k_0-1)*100 (c_k_5/c_k_0-1)*100
exp5b.options linepat
exp5b.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp5b.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp5b.setelem(3) lcolor(red) lwidth(2) lpat(3)
exp5b.name(1) Real fixed investment
exp5b.name(2) Real output
exp5b.name(3) Real consumption
exp5b.addtext(t,just(c),just(c)) Figure 5.B: Evolution of consumption, investment and output, following a permanent decrease in the corporate tax rate

show exp5b

' Creates the chart in Figure EXP-5.C
smpl 1955 2050
graph exp5c.line (x_k_5/x_k_0-1)*100 (y_k_5/y_k_0-1)*100 (m_k_5/m_k_0-1)*100
exp5c.options linepat
exp5c.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp5c.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp5c.setelem(3) lcolor(red) lwidth(2) lpat(3)
exp5c.name(1) Real exports
exp5c.name(2) Real output
exp5c.name(3) Real imports
exp5c.addtext(t,just(c),just(c)) Figure 5.C: Evolution of exports, imports and output, following a permanent decrease in the corporate tax rate

show exp5c

' Creates the chart in Figure EXP-5.D
smpl 1955 2050
graph exp5d.line ((psbr_5/y_5)-(psbr_0/y_0))*100 ((ca_row_5/y_5)-(ca_row_0/y_0))*100
exp5d.options linepat
exp5d.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp5d.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp5d.name(1) PSBR (Government surplus)
exp5d.name(2) Current Account
exp5d.addtext(t,just(c),just(c)) Figure 5.D: Evolution of government surplus and current account to GDP ratios, following a permanent decrease in the corporate tax rate

show exp5d

' Creates the chart in Figure EXP-5.E
smpl 1955 2050
graph exp5e.line nirr_5-nirr_0
exp5e.options linepat
exp5e.setelem(1) lcolor(green) lwidth(2) lpat(2)
exp5e.name(1) Effect upon net international reserve ratio
exp5e.addtext(t,just(c),just(c)) Figure 5.E: Change in net international reserves ratio, following a permanent decrease in the corporate tax rate

show exp5e

' Creates the chart in Figure EXP-5.F
smpl 1955 2050
graph exp5f.line 101 (er_5-er_0+1)*100 99
exp5f.options linepat
exp5f.setelem(1) lcolor(black) lwidth(2) lpat(2)
exp5f.setelem(2) lcolor(green) lwidth(2) lpat(1)
exp5f.setelem(3) lcolor(black) lwidth(2) lpat(2)
exp5f.name(1) Inflationary pressure threshold
exp5f.name(2) Employment rate
exp5f.name(3) Deflationary pressure threshold
exp5f.addtext(t,just(c),just(c)) Figure EXP-5.F: Evolution of employment rate, following a permanent decrease in the corporate tax rate

show exp5f

' Creates the chart in Figure EXP-5.G
smpl 1955 2050
graph exp5g.line (td_5/y_5-td_0/y_0) (bcbs_5/y_5-bcbs_0/y_0) (gdh_g_5/y_5-gdh_g_0/y_0)
exp5g.options linepat
exp5g.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp5g.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp5g.setelem(3) lcolor(red) lwidth(2) lpat(3)
exp5g.name(1) Total Government debt
exp5g.name(2) Central Bank bills
exp5g.name(3) Government deposits at Central Bank
exp5g.addtext(t,just(c),just(c)) Figure 5.G: Evolution of government debt, central bank bills, and government deposits at CB, following a permanent decrease in the corporate tax rate

show exp5g

' Creates the chart in Figure EXP-5.H
smpl 1955 2050
graph exp5h.line ((c_k_5-c_k_0)/y_k_0)*100 ((i_k_5-i_k_0)/y_k_0)*100 ((g_k_5-g_k_0)/y_k_0)*100 ((x_k_5-x_k_0)/y_k_0)*100 -((m_k_5-m_k_0)/y_k_0)*100 ((y_k_5-y_k_0)/y_k_0)*100
exp5h.options linepat
exp5h.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp5h.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp5h.setelem(3) lcolor(red) lwidth(2) lpat(3)
exp5h.setelem(4) lcolor(black) lwidth(2) lpat(4)
exp5h.setelem(5) lcolor(yellow) lwidth(2) lpat(5)
exp5h.setelem(6) lcolor(orange) lwidth(2) lpat(6)
exp5h.name(1) Real consumption
exp5h.name(2) Real investment
exp5h.name(3) Real government expenditure
exp5h.name(4) Real exports
exp5h.name(5) Real imports
exp5h.name(6) Real GDP
exp5h.addtext(t,just(c),just(c)) Figure 5.H: Contribution to real GDP growth of a permanent decrease in the corporate tax rate

show exp5h

' Creates the chart in Figure EXP-5.I
smpl 1955 2050
graph exp5i.line (((w_5/pr_5)-(w_0/pr_0))/(w_0/pr_0))*100 ((pd_5-pd_0)/pd_0)*100
exp5i.options linepat
exp5i.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp5i.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp5i.name(1) Effect upon wage to productivity ratio
exp5i.name(2) Effect upon prices
exp5i.addtext(t,just(c),just(c)) Figure 5.I: Inflationary effect, following a permanent decrease in the corporate tax rate

show exp5i

' Creates the chart in Figure EXP-5.J
smpl 1955 2050
graph exp5j.line (xrendog_5/xrendog_0-1)*100
exp5j.options linepat
exp5j.setelem(1) lcolor(green) lwidth(2) lpat(2)
exp5j.name(1) Effect upon shadow exchange rate
exp5j.addtext(t,just(c),just(c)) Figure 5.J: Hypothetical effect upon shadow exchange rate (exchange rate that would prevail if market-determined), following a permanent decrease in the corporate tax rate

show exp5j

' Creates the chart in Figure EXP-5.K
smpl 1955 2050
graph exp5k.line ((ydr_h_k_e_5-ydr_h_k_e_0)/ydr_h_k_e_0)*100 ((v_h_k_5-v_h_k_0)/v_h_k_0)*100
exp5k.options linepat
exp5k.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp5k.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp5k.name(1) Real effect upon regular disposable income
exp5k.name(2) Real effect upon households’ wealth
exp5k.addtext(t,just(c),just(c)) Figure 5.K: Real (income and wealth) effects upon consumption, following a permanent decrease in the corporate tax rate

show exp5k

' Creates the chart in Figure EXP-5.L
smpl 1955 2050
graph exp5l.line (((cg_h_5/pd_5)-(cg_h_0/pd_0))/(cg_h_0/pd_0))*100
exp5l.options linepat
exp5l.setelem(1) lcolor(green) lwidth(2) lpat(2)
exp5l.name(1) Real effect upon capital gains of households
exp5l.addtext(t,just(c),just(c)) Figure 5.L: Real effect upon capital gains, following a permanent decrease in the corporate tax rate

show exp5l