Paths of the VAT Rate, Transfers, and Debt When Revenue from User Fees Increases from 50 Percent to 100 Percent of Recurrent Costs over a Period of 10 Years

Source: Numerical solutions generated by the authors’ Dynare programs.

Note: The return on infrastructure is 20–30 percent, the ceiling on the VAT rate is 15–15.5 percent, and public sector wage increases match private wage increases. Time is on the x axis. Debt is expressed as a percentage of current GDP and the change in transfers as a percentage of initial GDP.