[alex1023]

Hi, I am facing the following problem in the context of the neoclassical model of Baxter/King (1993). And I am struggling including the taxes at the right places. Here is my Dynare code:

// Fiscal Policy in General Equilibrium

//Benchmark Model with Basic Government Purchases
// Variables
var c,y,I,k,l,n,g,lb,w,tr;
varexo gb;

// Parameters
parameters r, q, beta,delta,thetal,thetan,thetak,sg,tau,nss,lss,trs s,yss,gss,iss,css,kss,lbss,wss;

// Predetermined Variables
predetermined_variables k;

// Parametrization
r=0.065;
thetak=0.42;
thetan=0.58;
delta=0.1;
beta=0.939;
tauss=0.2;
tau=tauss;
sg=0.2;
nss=0.2;
lss=0.8;
trss=0;
q=r+delta;

//Steady State

koy=thetak/((1-tau)*q);
ioy=delta*thetak/((1-tau)*q);
coy=1-ioy-sg;
yss=(koy^(thetak/(1-thetak))*nss^(thetan/(1-thetak)));
gss=sg*yss;
iss=ioy*yss;
css=coy*yss;
kss=koy*yss;
lbss=1/css;
wss=thetan*yss/nss;
thetal=lbss*(1-tauss)*wss*lss;

model;
1/c=lb; // Marginal Utility
w=thetan*y/n; // Wage Equation
thetal/l=lb*(1-tau)*thetan*y/n; // Marginal Product of Labour
lb=beta*lb(+1)*((1-tau(+1))*(thetak*y(+1)/k(+1))+1-delta); // Euler Equation
y=k^thetak*n^thetan; // Production Funcion
y=c+i+g; // Income Identity
g=gb; // Government Expenditure
k(+1)=(1-delta)*k+i; // Private Capital
l+n=1; // Leisure/Labour Relationship
tau*y=g+tr;
end;

initval;
tr=trss;
gb=gss;
g=gss;
y=yss;
c=css;
I=iss;
k=kss;
lb=lbss;
n=nss;
l=lss;
w=wss;
end;

steady;
check;

// Permanent Shock
endval;
gb=0.01*yss+gss;
end;

steady;
check;

simul(periods=50);

Thank you very much in advance!