Shocks to tax rates

Shocks to some tax variables are by default interpreted in a special way: a value of -50 means a 50% reduction in the ad valorem rate of the tax. In this case the Type of Shock combo box will indicate the option % change rate, and the shock statement will contain the keyword rate% to indicate the ad-valorem-rate interpretation.

If your shock is a percentage reduction in the ad valorem rate of a tax, the shock specification line will refer to a file. These variables are really powers of taxes (if tax rate is 20%, power is 1.2). The file shows what percent changes in powers are needed to move the ad valorem rates to zero. RunGTAP calculates what percent changes in powers are needed to reduce the ad valorem rates by the specified proportion. For example to eliminate an ad valorem rate of 20% (rate%=-100), the power of the tax must change from 1.2 to 1.0: a change of -16.67%. To halve the same rate (rate%=-50), the power of the tax must change from 1.2 to 1.1: a change of -8.33%. Consult Valerie if you have trouble with changes in powers and ad valorem rates.

If you are shocking an individual tax rate, RunGTAP works out these calculations in front of your eyes.

You may instead choose the option % change power. In this case a value of -50 means a halving of the power of the tax. That would change a power of 1.2 into 0.6: turning a 20% tax into a 40% subsidy.

Finally, you may instead choose the option % target rate. In this case a value of 10 means changing the tax rate so that it equals 10%. RunGTAP works out the corresponding shock to the power. The % target rate option is especially useful for altering database tax rates.