' Fourth Experiment: A permanent decrease in the income 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-4.A to EXP-4.I discussed in the Appendix

smpl @all

' Store original value of shocked parameter to baseline
genr theta_h_0 = theta_h

' Decrease the income tax rate permanently
smpl 1960 @last
theta_h = 0.20
smpl @all

' Select the second alternative Scenario 4

REEs_mod.scenario(n, a="_4") "Scenario 4"

' 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_h_4 = theta_h

' and get back shocked variable to its baseline value
theta_h = theta_h_0

' Creates charts from simulated variables

' Creates the chart in Figure EXP-4.A
smpl 1955 2050
graph exp4a.line ((w_4-w_0)/w_0)*100 (((w_4/pd_4)-(w_0/pd_0))/(w_0/pd_0))*100 ((pd_4-pd_0)/pd_0)*100
exp4a.options linepat
exp4a.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp4a.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp4a.setelem(3) lcolor(red) lwidth(2) lpat(3)
exp4a.name(1) Effect upon nominal wages
exp4a.name(2) Effect upon real wages
exp4a.name(3) Effect upon prices
exp4a.addtext(t,just(c),just(c)) Figure 4.a: Effect upon real wage rate, following a permanent decrease in the income tax rate

show exp4a

' Creates the chart in Figure EXP-4.B
smpl 1955 2050
graph exp4b.line (i_k_4/i_k_0-1)*100 (y_k_4/y_k_0-1)*100 (c_k_4/c_k_0-1)*100
exp4b.options linepat
exp4b.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp4b.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp4b.setelem(3) lcolor(red) lwidth(2) lpat(3)
exp4b.name(1) Real fixed investment
exp4b.name(2) Real output
exp4b.name(3) Real consumption
exp4b.addtext(t,just(c),just(c)) Figure 4.B: Evolution of consumption, investment and output, following a permanent decrease in the income tax rate

show exp4b

' Creates the chart in Figure EXP-4.C
smpl 1955 2050
graph exp4c.line (x_k_4/x_k_0-1)*100 (y_k_4/y_k_0-1)*100 (m_k_4/m_k_0-1)*100
exp4c.options linepat
exp4c.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp4c.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp4c.setelem(3) lcolor(red) lwidth(2) lpat(3)
exp4c.name(1) Real exports
exp4c.name(2) Real output
exp4c.name(3) Real imports
exp4c.addtext(t,just(c),just(c)) Figure 4.C: Evolution of exports, imports and output, following a permanent decrease in the income tax rate

show exp4c

' Creates the chart in Figure EXP-4.D
smpl 1955 2050
graph exp4d.line ((psbr_4/y_4)-(psbr_0/y_0))*100 ((ca_row_4/y_4)-(ca_row_0/y_0))*100
exp4d.options linepat
exp4d.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp4d.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp4d.name(1) PSBR (Government surplus)
exp4d.name(2) Current Account
exp4d.addtext(t,just(c),just(c)) Figure 4.D: Evolution of government surplus and current account to GDP ratios, following a permanent decrease in the income tax rate

show exp4d

' Creates the chart in Figure EXP-4.E
smpl 1955 2050
graph exp4e.line nirr_4-nirr_0
exp4e.options linepat
exp4e.setelem(1) lcolor(green) lwidth(2) lpat(2)
exp4e.name(1) Effect upon net international reserve ratio
exp4e.addtext(t,just(c),just(c)) Figure 4.E: Change in net international reserves ratio, following a permanent decrease in the income tax rate

show exp4e

' Creates the chart in Figure EXP-4.F
smpl 1955 2050
graph exp4f.line 101 (er_4-er_0+1)*100 99
exp4f.options linepat
exp4f.setelem(1) lcolor(black) lwidth(2) lpat(2)
exp4f.setelem(2) lcolor(green) lwidth(2) lpat(1)
exp4f.setelem(3) lcolor(black) lwidth(2) lpat(2)
exp4f.name(1) Inflationary pressure threshold
exp4f.name(2) Employment rate
exp4f.name(3) Deflationary pressure threshold
exp4f.addtext(t,just(c),just(c)) Figure EXP-4.F: Evolution of employment rate, following a permanent decrease in the income tax rate

show exp4f

' Creates the chart in Figure EXP-4.G
smpl 1955 2050
graph exp4g.line (td_4/y_4-td_0/y_0) (bcbs_4/y_4-bcbs_0/y_0) (gdh_g_4/y_4-gdh_g_0/y_0)
exp4g.options linepat
exp4g.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp4g.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp4g.setelem(3) lcolor(red) lwidth(2) lpat(3)
exp4g.name(1) Total Government debt
exp4g.name(2) Central Bank bills
exp4g.name(3) Government deposits at Central Bank
exp4g.addtext(t,just(c),just(c)) Figure 4.G: Evolution of government debt, central bank bills, and government deposits at CB, following a permanent decrease in the income tax rate

show exp4g

' Creates the chart in Figure EXP-4.H
smpl 1955 2050
graph exp4h.line ((c_k_4-c_k_0)/y_k_0)*100 ((i_k_4-i_k_0)/y_k_0)*100 ((g_k_4-g_k_0)/y_k_0)*100 ((x_k_4-x_k_0)/y_k_0)*100 -((m_k_4-m_k_0)/y_k_0)*100 ((y_k_4-y_k_0)/y_k_0)*100
exp4h.options linepat
exp4h.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp4h.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp4h.setelem(3) lcolor(red) lwidth(2) lpat(3)
exp4h.setelem(4) lcolor(black) lwidth(2) lpat(4)
exp4h.setelem(5) lcolor(yellow) lwidth(2) lpat(5)
exp4h.setelem(6) lcolor(orange) lwidth(2) lpat(6)
exp4h.name(1) Real consumption
exp4h.name(2) Real investment
exp4h.name(3) Real government expenditure
exp4h.name(4) Real exports
exp4h.name(5) Real imports
exp4h.name(6) Real GDP
exp4h.addtext(t,just(c),just(c)) Figure 4.H: Contribution to real GDP growth of a permanent decrease in the income tax rate

show exp4h

' Creates the chart in Figure EXP-4.I
smpl 1955 2050
graph exp4i.line (((w_4/pr_4)-(w_0/pr_0))/(w_0/pr_0))*100 ((pd_4-pd_0)/pd_0)*100
exp4i.options linepat
exp4i.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp4i.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp4i.name(1) Effect upon wage to productivity ratio
exp4i.name(2) Effect upon prices
exp4i.addtext(t,just(c),just(c)) Figure 4.I: Inflationary effect, following a permanent decrease in the income tax rate

show exp4i

' Creates the chart in Figure EXP-4.J
smpl 1955 2050
graph exp4j.line (xrendog_4/xrendog_0-1)*100
exp4j.options linepat
exp4j.setelem(1) lcolor(green) lwidth(2) lpat(2)
exp4j.name(1) Effect upon shadow exchange rate
exp4j.addtext(t,just(c),just(c)) Figure 4.J: Hypothetical effect upon shadow exchange rate (exchange rate that would prevail if market-determined), following a permanent decrease in the income tax rate

show exp4j

' Creates the chart in Figure EXP-4.K
smpl 1955 2050
graph exp4k.line ((ydr_h_k_e_4-ydr_h_k_e_0)/ydr_h_k_e_0)*100 ((v_h_k_4-v_h_k_0)/v_h_k_0)*100
exp4k.options linepat
exp4k.setelem(1) lcolor(blue) lwidth(2) lpat(1)
exp4k.setelem(2) lcolor(green) lwidth(2) lpat(2)
exp4k.name(1) Real effect upon regular disposable income
exp4k.name(2) Real effect upon households’ wealth
exp4k.addtext(t,just(c),just(c)) Figure 4.K: Real (income and wealth) effects upon consumption, following a permanent decrease in the income tax rate

show exp4k

' Creates the chart in Figure EXP-4.L
smpl 1955 2050
graph exp4l.line (((cg_h_4/pd_4)-(cg_h_0/pd_0))/(cg_h_0/pd_0))*100
exp4l.options linepat
exp4l.setelem(1) lcolor(green) lwidth(2) lpat(2)
exp4l.name(1) Real effect upon capital gains of households
exp4l.addtext(t,just(c),just(c)) Figure 4.L: Real effect upon capital gains, following a permanent decrease in the income tax rate

show exp4l