RBC Model with Fiscal Policy

Distortionary fiscal policy transmission in an efficient (flexible) prices economy.

• How does labour vs capital income taxation affect the transmission of fiscal policy shocks to aggregate fluctuations under flexible prices?
  • Dynamically altering the structural and policy parameters to simulate the equilibrium IRFs of the economy to aggregate shocks.
  • The \(\psi \in (0,1)\) parameter controls the incidence of labour income tax revenue in the budget, under a balanced budget assumption. Larger values of \(\psi\) pass a larger public finance burden on labour: \[ \psi G_t = \tau_l w_t N_t \] \[ G_t = \tau_l w_t N_t + \tau_k r_t K_{t-1} \]
  • Different mixes imply a different allocation of distortions from fiscal shocks, shaping fiscal policy propagation in the economy.
  • Spending assumed to revert to zero in long run for an efficient RBC steady-state.

Simulate dynamics in response to productivity and fiscal policy shocks:

• This dashboard connects directly to the server installation of Dynare and GNU Octave, via oct2py.
• Clicking on Run Dynare Engine freezes the input model configuration, generates a .mod file and feeds to the Dynare pipeline. Outputs are temporarily stored for visualisation.