# Step 205, part F: the profit tax at Israeli values

In the model, tax on profits each year is tau x kappa x profits, with profits 40% of output at the
start: corporate tax revenue / output = 0.4 tau kappa. The grid spans tau in {25%, 35%} and kappa
(the share of profits within reach of the tax) in {0.5, 1}, i.e. 5% to 14% of output.

**Israel.** 2021–2024, from the panel already in the repository
(`data/processed/israel_macrovision_panel_2000_2024.csv`, OECD and CBS): statutory corporate tax
23%; corporate tax revenue 3.6%–4.4% of GDP. Holding the model's profit share, kappa = 0.39–0.48
(central 0.42), so the Israeli tax take (about 3.9% of output) sits below the grid's lowest corner
(5%). The 144 cases of the other factors (productivity, pass-through, ownership, tenure, rate
stress) were rerun at the Israeli values and at the four grid corners, v98 no-credit variant.
Archived in `data/processed/israel_tax_v205.json`.

| Setting | tau | kappa | tax / output | completed | displaced kept 90% |
|---|---:|---:|---:|---:|---:|
| Israel, low | 23% | 0.39 | 3.6% | 44 | 22 |
| Israel, central | 23% | 0.42 | 3.9% | 44 | 18 |
| Israel, high | 23% | 0.48 | 4.4% | 32 | 7 |
| Grid corner | 25% | 0.5 | 5% | 24 | 0 |
| Grid corner | 35% | 0.5 | 7% | 48 | 10 |
| Grid corner | 25% | 1 | 10% | 82 | 25 |
| Grid corner | 35% | 1 | 14% | 48 | 40 |

Completed paths by productivity gain (25% / 50% / 100%):

| Setting | 25% | 50% | 100% |
|---|---:|---:|---:|
| Israel, central | 0 | 0 | 44 |
| 25%, 0.5 | 0 | 0 | 24 |
| 35%, 0.5 | 0 | 48 | 0 |
| 25%, 1 | 48 | 34 | 0 |
| 35%, 1 | 48 | 0 | 0 |

Reading:

1. **A narrow corridor.** For each tax take only one range of productivity gains lets a path
   finish. With a low take the government cannot pay its existing commitments in cash unless
   productivity grows a lot; with a high take, larger productivity gains end in corporate liquidity
   failure. The two failure reasons in the table above trade places as the take rises.
2. **Israel sits at the low-tax end.** At the Israeli take every path with a 25% or 50% productivity
   gain fails because existing government commitments cannot be financed in cash. Only when
   productivity doubles do paths complete (44 of 144), and in 18 of those both displaced groups keep
   90% of their consumption.
3. **The result is not monotone in the tax reach.** Moving kappa from 0.39 to 0.48 lowers completion
   (44 to 32) and preservation (22 to 7) because more paths end in corporate liquidity failure.
   Small changes near the boundary move many paths, so the Israeli figures should be read as the
   location of the corridor, not as precise rates.

Limits: the profit share (40%) and the wage tax (20% of wages) are not calibrated; corporate tax
revenue is a GDP ratio applied to model output; the model has no other taxes on capital. Not a
forecast.