# Step 230: the macro core set to Israeli values

Four constants of the model's macro core had not been calibrated: the labour share of output
(0.60), the tax rate on labour income (20%), government debt (60% of output) and the interest rate
on it (3%). This step sets them from Israeli data and reruns the 576-case grid (v98, no-credit
variant). Generated by `scripts/israel_macro_v230.py`; archived in `data/processed/israel_macro_v230.json`.

**Sources** (`data/processed/israel_macro_inputs_v230.json`, fetched in CI run 42405924219 with
SHA-256 of every response): OECD national accounts, income approach (D1, B1GQ, D2X3); OECD Revenue
Statistics (personal income tax 1100, social security contributions 2000); ILO SDG indicator 10.4.1
(labour income share including the self-employed); IMF WEO general government gross debt; World
Bank WDI central government interest payments; CBS consumer prices (step 207). Means for 2021-2024.

| Input | Model | Israel, central | Range | Basis |
|---|---:|---:|---:|---|
| Labour share of factor income | 0.60 | 0.56 | 0.48 - 0.60 | ILO labour income share 50.0% of GDP; GDP at factor cost is 88.7% of GDP. Employees only (D1): 0.48 |
| Tax on labour income | 20% | 24% | 20% - 28% | PIT + SSC 11.9% of GDP over labour income; over employee pay only: 28% |
| Government debt / output | 60 | 73 | 60 - 73 | Gross debt 64.7% of GDP, restated against GDP at factor cost |
| Interest rate on debt | 3% | 1.0% (real) | 1.0% - 4.6% | Effective nominal 4.6% in 2023-24 less CPI inflation 3.6% |

The model's output is factor income, so debt is restated against GDP at factor cost. Existing
government spending stays defined as the year-0 budget balance. Housing payments are scaled with
each case's reference income, so rent and mortgage burdens stay at the grid's shares; housing is
calibrated separately in step 205. The archived model files are not edited: constants are set in
memory and restored after each run.

## A. Grid with the model's tax factors

| Setting | Completed (of 576) | Both displaced cohorts kept 90% |
|---|---:|---:|
| Model values | 202 | 75 |
| Labour share only (0.56) | 192 | 75 |
| Labour tax only (24%) | 200 | 72 |
| Debt only (73) | 209 | 80 |
| Interest only (1%) | 204 | 77 |
| **All four at Israeli values** | **207** | **88** |

By pass-through, Israeli values: 30/64, 32/69 and 26/74 preserved/completed at 0, 0.5 and full
pass-through (model: 30/64, 26/66, 19/72).

## B. With Israeli corporate tax (23%, 42% of profits within reach; step 205F)

| Setting | Completed (of 144) | Both displaced kept 90% |
|---|---:|---:|
| Model macro core | 44 | 18 |
| **Israeli macro core** | **43** | **22** |
| Labour share 0.48 (employees only) | 20 | 11 |
| Labour share 0.60 | 48 | 22 |
| Labour tax 20% | 48 | 22 |
| Labour tax 28% | 35 | 17 |
| Debt 60 | 43 | 22 |
| Interest 4.6% (nominal) | 44 | 22 |

With the Israeli macro core every completed path still needs productivity to double; all paths
with a 25% or 50% gain stop because existing government commitments lack cash financing.

## Reading

1. **The macro core is not what limits the Israeli results.** Setting the four constants to
   Israeli values changes the counts little: the main constraint found in step 205F, a corporate tax
   take below the grid, remains. Only doubled productivity lets paths complete (43 of 144), and 22
   of them preserve both displaced cohorts (18 with the model's core).
2. **The labour share is the sensitive input.** Measured over employees only (0.48), completions
   halve (20 of 144): a smaller wage bill means less labour-tax revenue to pay benefits as the
   displaced leave work. The ILO measure, which adds the self-employed, is the closer match to the
   model's single labour income and is the central value.
3. **Debt and interest hardly matter here**, because existing spending is defined as the year-0
   budget balance: a higher interest bill is offset by lower other spending at the start.

## Limits

- Taxes on production and consumption (VAT and others, 11.3% of GDP) are outside the model; its
  budget is wage tax plus profit tax.
- Personal income tax also falls on capital and self-employment income, so the 24% labour tax is
  an upper-side estimate for wages; the employee-pay variant (28%) is shown as a range.
- Interest is central-government payments (WDI) over general-government debt (IMF), and the real
  rate subtracts CPI inflation from an effective nominal rate; both are approximations.
- Still uncalibrated: household behaviour, the consumption share, productivity, pass-through and the
  equity valuation. Illustrative; not a forecast.