What economic policy variables should I use to simulate a change in tax X?
As always, the selection of appropriate policy variables can depend upon the details of your specific scenario. However, the list below provides guidance on how to simulate basic tax policy changes. Most of the discussion below assumes that you know the dollar impact of the change in tax policy, and thus plan to use Amount policy variables. If you wish to use a share variable, you may need to calculate the percentage price or cost change with reference to an appropriate denominator – for example, total consumer spending on the relevant consumption category, or total output of an industry. Remember that you may wish to match your tax change with an equivalent change in government spending in order to simulate a balanced-budget scenario.
