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A dynamic general equilibrium model for tax policy analysis in Colombia

Hernandez, Gustavo Adolfo and Light, Miles and Rutherford, Thomas (2002): A dynamic general equilibrium model for tax policy analysis in Colombia.

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Abstract

The paper documents a dynamic general equilibrium model for Colombia based on national accounts from 1999. The paper is part of a project intended to develop a capacity for the the design, specification, and application of computable models within the Colombian Ministry of Finance and Department of National Planning. Our analytical framework includes both forwardlooking expectations and Harris-Todaro labor markets. In the present paper we compare numerical results from the dynamic model with simpler static and steady-state formulations to highlight the importance of transitional effects in evaluating tax policy reform. Our applications include measurement of the marginal cost of funds from different tax bases and the evaluation of discrete changes in tariff structure. The structure of the labor and intermediate credit markets have important implications for the ranking alternative tax reform proposals.

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