diff --git a/docs/book/content/calibration/exogenous_parameters.md b/docs/book/content/calibration/exogenous_parameters.md index 684c4e4..47bb2cc 100644 --- a/docs/book/content/calibration/exogenous_parameters.md +++ b/docs/book/content/calibration/exogenous_parameters.md @@ -37,7 +37,7 @@ kernelspec: | Symbol | Description | Value | |:---------------------------------|:------------------------------------------------------------------------|:------------------------------------------------------| -| $\texttt{start_year}$ | Initial year | 2023 | +| $\texttt{start_year}$ | Initial year | 2026 | | $\omega_{s,t}$ | Population by age over time | Too large to report here, see default parameters JSON | | $i_{s,t}$ | Immigration rates by age | Too large to report here, see default parameters JSON | | $\rho_{s,t}$ | Mortality rates by age | Too large to report here, see default parameters JSON | @@ -67,7 +67,7 @@ kernelspec: | $\texttt{analytical_mtrs}$ | Whether use analytical MTRs or estimate MTRs | 0.00E+00 | | $\texttt{age_specific}$ | Whether use age-specific tax functions | 1.000 | | $\tau^{p}_{t}$ | Payroll tax rate | [0.140...0.140] | -| $\tau^{BQ}_{t}$ | Bequest (estate) tax rate | [0.200...0.200] | +| $\tau^{BQ}_{t}$ | Bequest (estate) tax rate | [0.060...0.060] | | $\tau^{b}_{t}$ | Entity-level business income tax rate | Too large to report here, see default parameters JSON | | $\delta^{\tau}_{t}$ | Rate of depreciation for tax purposes | Too large to report here, see default parameters JSON | | $\tau^{c}_{t,s,j}$ | Consumption tax rates | Too large to report here, see default parameters JSON | @@ -76,10 +76,10 @@ kernelspec: | $P$ | Coefficient on level term in wealth tax function | [0.000...0.000] | | $\texttt{budget_balance}$ | Whether have a balanced budget in each period | 0.00E+00 | | $\texttt{baseline_spending}$ | Whether level of spending constant between the baseline and reform runs | 0.00E+00 | -| $\alpha^{T}_{t}$ | Transfers as a share of GDP | [0.097...0.097] | +| $\alpha^{T}_{t}$ | Transfers as a share of GDP | [0.0448...0.0448] | | $\eta_{j,s,t}$ | Distribution of transfers | Too large to report here, see default parameters JSON | -| $\alpha^{G}_{t}$ | Government spending as a share of GDP | [0.215, 0.209, 0.207] | -| $\alpha^{I}_{t}$ | Government infrastructure spending as a share of GDP | [0.054, 0.054, 0.056] | +| $\alpha^{G}_{t}$ | Government spending as a share of GDP | [0.1702, 0.1632, 0.1612] | +| $\alpha^{I}_{t}$ | Government infrastructure spending as a share of GDP | [0.051, 0.051, 0.052] | | $t_{G1}$ | Model period in which budget closure rule starts | 20 | | $t_{G2}$ | Model period in which budget closure rule ends | 256 | | $\rho_{G}$ | Budget closure rule smoothing parameter | 0.100 | @@ -97,8 +97,8 @@ kernelspec: | $\texttt{PIA_minpayment}$ | Minimum PIA payment | 0.00E+00 | | $\theta_{adj,t}$ | Adjustment to replacement rate | [1.000...1.000] | | $r^{*}_{t}$ | World interest rate | [0.040...0.040] | -| $D_{f,0}$ | Share of government debt held by foreigners in initial period | 0.146 | -| $\zeta_{D, t}$ | Share of new debt issues purchased by foreigners | [0.146...0.146] | +| $D_{f,0}$ | Share of government debt held by foreigners in initial period | 0.200 | +| $\zeta_{D, t}$ | Share of new debt issues purchased by foreigners | [0.200...0.200] | | $\zeta_{K, t}$ | Share of excess capital demand satisfied by foreigners | [0.900...0.900] | | $\xi$ | Dampening parameter for TPI | 0.400 | | $\texttt{maxiter}$ | Maximum number of iterations for TPI | 250 | diff --git a/docs/book/content/calibration/government.md b/docs/book/content/calibration/government.md index 3305d1f..b17499b 100644 --- a/docs/book/content/calibration/government.md +++ b/docs/book/content/calibration/government.md @@ -3,13 +3,13 @@ ## Government Transfers as a Share of GDP -We have calibrated Philippine government spending on transfer programs as a percent of GDP as $\alpha_T=[0.0971]$. [TODO: Include citation.] +We calibrate Philippine government spending on transfer programs as a percent of GDP as $\alpha_T=[0.0448]$, using World Bank World Development Indicators data for 2023. ## Government Spending as a Share of GDP -The 2025 Budget of Expenditures and Sources of Financing Table A2 https://www.dbm.gov.ph/index.php/2025/budget-of-expenditures-and-sources-of-financing-fy-2025 forecasts total federal spending as a percent of GDP in 2025, 2026, and 2027 as 21.5%, 20.9%, and 20.7%, respectively. To get the portion that is net of transfers, we subtract off the calibrated percentage of spending on transfers as a percent of GDP $\alpha_T=[0.0971]$. This gives our calibration for government spending net of transfers as a percent of GDP for 2025, 2026, and 2027 as $\alpha_G=[0.1179, 0.1119, 0.1099]$. +The Department of Budget and Management (DBM), Budget of Expenditures and Sources of Financing (BESF) for FY 2026, Table A2 ([source](https://www.dbm.gov.ph/wp-content/uploads/BESF/BESF2026/A2.pdf)) forecasts total federal disbursements as a percent of GDP in 2026, 2027, and 2028 as 21.5%, 20.8%, and 20.6%, respectively. To get the portion that is net of transfers, we subtract off the calibrated share of spending on transfers $\alpha_T=[0.0448]$ from each. This gives our calibration for government spending net of transfers as a percent of GDP for 2026, 2027, and 2028 as $\alpha_G=[0.1702, 0.1632, 0.1612]$. ### Government spending on infrastructure as a share of GDP -We've calibrated the vector $\alpha_I=[0.054, 0.054, 0.056]$. These values are forecasts for 2025, 2026 and 2027. This came from the 2025 Budget of Expenditures and Sources of Financing Table A2 https://www.dbm.gov.ph/index.php/2025/budget-of-expenditures-and-sources-of-financing-fy-2025 +We calibrate the vector $\alpha_I=[0.051, 0.051, 0.052]$. These values are forecasts for 2026, 2027, and 2028, taken directly from the "Infrastructure Program (Disbursements), Percent of GDP" row of the DBM, BESF for FY 2026, Table A2 ([source](https://www.dbm.gov.ph/wp-content/uploads/BESF/BESF2026/A2.pdf)). diff --git a/docs/book/content/calibration/macro.md b/docs/book/content/calibration/macro.md index 87650dd..75df79c 100644 --- a/docs/book/content/calibration/macro.md +++ b/docs/book/content/calibration/macro.md @@ -3,21 +3,25 @@ ## Economic Assumptions -As the default rate of labor augmenting technological change, $g_y$, we use a value of 3.6%. The average annual growth rate in GDP per capita in the Philippines between 2000 and 2019 is 3.6% per year. +As the default rate of labor augmenting technological change, $g_y$, we use a value of 3.6%. The average annual growth rate in GDP per capita in the Philippines between 2000 and 2019 is 3.6% per year. The pre-pandemic window is used deliberately to avoid COVID-era volatility distorting the steady-state productivity target. ## Open Economy Parameters ### Foreign holding of government debt in the initial period -The path of foreign holding of domestic debt is endogenous, but the initial period stock of debt held by foreign investors is exogenous. We set this parameter, `initial_foreign_debt_ratio` to 0.142, as determined from data from the World Bank's World Development Indicators. +The path of foreign holding of domestic debt is endogenous, but the initial period stock of debt held by foreign investors is exogenous. We set this parameter, `initial_foreign_debt_ratio`, to 0.2, based on the Bureau of the Treasury (BTr) Debt Indicator report for Q4 2025 ([source](https://www.treasury.gov.ph/wp-content/uploads/2026/02/Debt-Indicator-December-2025.pdf)). ### Foreign purchases of newly issued debt -We set $\zeta_D = 0.142$. This was not directly observed in the data, so the value was set to the current share of foreign holdings of government debt. +We set $\zeta_D = 0.2$. This is calibrated to equal `initial_foreign_debt_ratio` above, on the assumption that the foreign share of newly issued debt matches the foreign share of the existing stock. ### Foreign holdings of excess capital -We set $\zeta_K = 0.9$. Note, this parameter is harder to pin down from the data as foreign purchases on "excess" capital demand is not typically directly measured or reported. A value of 0.9 implies a high degree of openness to international capital flows. +We set $\zeta_K = 0.9$. Note, this parameter is harder to pin down from the data as foreign purchases on "excess" capital demand is not typically directly measured or reported. A value of 0.9 implies a high degree of openness to international capital flows. + +### Remittances as a share of GDP + +Personal remittance inflows to the Philippines are a substantial component of household income. The ratio of aggregate remittances to GDP is governed by two parameters: $\alpha_{RM,1}$ for the model's start period and $\alpha_{RM,T}$ for the long run / steady state. Both are set to 0.072 (7.2%), based on Bangko Sentral ng Pilipinas (BSP) data for 2025 ([source](https://www.bsp.gov.ph/SitePages/MediaAndResearch/MediaDisp.aspx?ItemId=7821&MType=MediaReleases)). The long-run value is calibrated to equal the current-period value. ## Government Debt, Spending and Transfers @@ -27,10 +31,18 @@ The path of government debt is endogenous. But the initial value is exogenous. ### Aggregate transfers -Aggregate (non-Social Security) transfers to households are set as a share of GDP with the parameter $\alpha_T$. We exclude Social Security from transfers since it is modeled specifically. With this definition, the share of transfers to GDP in 2023 is found to be 9.7% using [IMF data](https://www.imf.org/external/datamapper/profile/PHL). The value found by differencing out government consumption expenditures (described below) from total government spending as report in the IMF data. +Aggregate (non-Social Security) transfers to households are set as a share of GDP with the parameter $\alpha_T$. We exclude Social Security from transfers since it is modeled specifically. We set $\alpha_T = [0.0448]$ (4.48%) using World Bank World Development Indicators data for 2023. The value is computed as the product of total government expense as a share of GDP (WDI series `GC.XPN.TOTL.GD.ZS`) and the share of that expense classified as subsidies and other transfers. ### Government expenditures -Government spending on goods and services are also set as a share of GDP with the parameter $\alpha_G$. We define government spending as: +Government spending on goods and services is set as a share of GDP with the parameter $\alpha_G$. We define government spending as:
Government Spending = Total Outlays - Transfers - Net Interest on Debt - Social Security
-With this definition, the share of government expenditure to GDP is 14.2% based on the World Bank World Development Indicators. +We set $\alpha_G = [0.1702, 0.1632, 0.1612]$ for years 2026, 2027, and 2028, derived from the Department of Budget and Management (DBM), Budget of Expenditures and Sources of Financing (BESF) for FY 2026, Table A2 ([source](https://www.dbm.gov.ph/wp-content/uploads/BESF/BESF2026/A2.pdf)). Specifically, total disbursements as a percent of GDP are 21.5%, 20.8%, and 20.6% for those years; subtracting $\alpha_T = 0.0448$ from each gives the values above. + +### Government interest rate wedge + +The interest rate the government pays on its debt, $r_{gov,t}$, generally differs from the household interest rate $r_t$ — sovereigns often borrow at lower rates than the private market because they are seen as safer borrowers. OG-Core models this gap as: + +$$r_{gov,t} = \max(r_{gov,scale} \cdot r_t - r_{gov,shift},\; 0)$$ + +For the Philippines, the two parameters are $r_{gov,scale} = 0.245$ and $r_{gov,shift} = -0.034$. They are calibrated from Philippine sovereign-vs-corporate yield data sourced from the IMF, following the methodology in Li, Magud, Werner, and Witte (2021), [The Long-Run Impact of Sovereign Yields on Corporate Yields in Emerging Markets](https://www.imf.org/en/Publications/WP/Issues/2021/06/04/The-Long-Run-Impact-of-Sovereign-Yields-on-Corporate-Yields-in-Emerging-Markets-50224) (IMF Working Paper No. WP/21/155). diff --git a/docs/book/content/calibration/taxes.md b/docs/book/content/calibration/taxes.md index 61d975a..cd20b44 100644 --- a/docs/book/content/calibration/taxes.md +++ b/docs/book/content/calibration/taxes.md @@ -14,7 +14,11 @@ The government sector influences households through two terms in the household b &\quad\forall j,t\quad\text{and}\quad s\geq E+1 \quad\text{where}\quad b_{j,E+1,t}=0\quad\forall j,t ``` -The total tax function, $T_{s,t}$, is a function of personal income taxes, taxes on bequests, and wealth taxes. In the default calibration, wealth and bequest taxes are set to zero in `OG-PHL`. Personal income taxes are modeled as linear taxes and set to average effective and marginal tax rates. The [OG-Core documentation](https://pslmodels.github.io/OG-Core/content/theory/government.html#taxes) details more detailed ways to match the progressivity of the tax system. But given limited data for Philippines, we start with simple linear tax rates of 12% for effective tax rates on personal income, a 18% marginal tax rate on capital income, and a 18\% marginal tax rate on labor income. +The total tax function, $T_{s,t}$, is a function of personal income taxes, taxes on bequests, and wealth taxes. In the default calibration, wealth taxes are set to zero in `OG-PHL`. The bequest tax $\tau_{bq}$ is set to 6%, matching the statutory estate tax rate established by the TRAIN Law (Republic Act No. 10963), as published by the Bureau of Internal Revenue ([source](https://www.bir.gov.ph/estate-tax)). + +Personal income taxes are modeled as linear taxes and set to average effective and marginal tax rates. The [OG-Core documentation](https://pslmodels.github.io/OG-Core/content/theory/government.html#taxes) details more sophisticated ways to match the progressivity of the tax system. But given limited data for the Philippines, we start with simple linear tax rates: a 20% effective tax rate on personal income (`etr_params`, calibrated to equal the marginal tax rate on labor income), a 20% marginal tax rate on labor income (`mtrx_params`, calibrated using Department of Finance data), and a 6% marginal tax rate on capital income (`mtry_params`, set to the flat capital gains rate established by the TRAIN Law per the Bureau of Internal Revenue). + +The `mean_income_data` parameter, used in tax function estimation, is set to ₱353,230 — the mean family income from the Philippine Statistics Authority's Family Income and Expenditure Survey for 2023 ([source](https://psa.gov.ph/statistics/income-expenditure/fies/index)). ## Corporate income taxes