Paraphrase of a question I got by email: “I want to model a tax reform, where agents are taxed based on their state/status/properties prior to the reform. Idea is to do the whole transition path”
I have created an example that shows how to do this. I use the Aiyagari (1994) model. The reform will tax the agents who had high initial assets, but not tax the agents who had low initial assets. To treat agents differently in the reform, I split them into two permanent types based on their initial asset holdings. The return function is modified so that the two permanent types then get different tax rates over the transition path.
Here are the codes:
[Note: this tax rate depends on their assets prior to the reform, rather than on their current assets. Making the tax rate depend on their current assets would be much easier as you can just do it in the return function without needing to play around with permanent types.]