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Bolivia’s fiscal rules: dynamic stochastic general equilibrium model approach

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  • Daney, Valdivia
  • Marcelo, Montenegro

Abstract

Changes in fiscal revenues in Bolivia allow us to assess its impact on the fiscal budget and spending policy. Based on a Dynamic Stochastic General Equilibrium Model (DSGE) using stylized facts for small open economy, we’re looking for a simulation of fundamentals’ responses or effects against different fiscal rules applied. In these sense we use two rules: first, where taxes adjust according to the debt level and government expenditures; and second, balanced budget where taxes adjust every time in order to maintain the equilibrium in budget. Our results show that after the fiscal shock hits the economy, the first fiscal rule has mayor stabilization effects on the price level than the second one, around 50%.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32114.

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Date of creation: Sep 2009
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Handle: RePEc:pra:mprapa:32114

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Keywords: Government expenditure; fiscal rule; pass - through; rule - of – thumb households;

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References

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  1. Jordi Galí & J. David López Salido & Javier Vallés, 2003. "Understanding the effects of government spending on consumption," Banco de Espa�a Working Papers 0321, Banco de Espa�a.
  2. Rodrigo Caputo & Felipe Liendo & Juan Pablo Medina, 2007. "New Keynesian Models for Chile in the Inflation-Targeting Period," Central Banking, Analysis, and Economic Policies Book Series, Central Bank of Chile, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 13, pages 507-546 Central Bank of Chile.
  3. Galí, Jordi & Monacelli, Tommaso, 2002. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3346, C.E.P.R. Discussion Papers.
  4. Daney Valdivia, 2008. "¿Es Importante la Fijación de Precios para Entender la Dinámica de la Inflación en Bolivia?," Development Research Working Paper Series, Institute for Advanced Development Studies 02/2008, Institute for Advanced Development Studies.
  5. Fatás, Antonio & Mihov, Ilian, 2001. "The Effects of Fiscal Policy on Consumption and Employment: Theory and Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2760, C.E.P.R. Discussion Papers.
  6. Carlos Garcia & Jorge Restrepo, 2007. "How Effective is Government Spending in a Small Open Economy with Distortionary Taxes," ILADES-Georgetown University Working Papers, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines inv188, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
  7. Smets, Frank & Wouters, Raf, 2002. "An estimated stochastic dynamic general equilibrium model of the euro area," Working Paper Series, European Central Bank 0171, European Central Bank.
  8. Schmidt-Hebbel, Klaus & Tapia, Matias, 2002. "Inflation targeting in Chile," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 13(2), pages 125-146, August.
  9. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(4), pages 1329-1368, November.
  10. Frank Smets & Raf Wouters, 2002. "Monetary policy in an estimated stochastic dynamic general equilibrium model of the Euro area," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Mar.
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Cited by:
  1. Daney, Valdivia & Marcelo, Montegro, 2011. "Boosting cycles and Stabilization effects of Fiscal Rules," MPRA Paper 32115, University Library of Munich, Germany.
  2. Valdivia, Daney & Loayza, Lilian, 2012. "Analizando la determinación de impuesto a la renta y sus efectos sobre el crecimiento de la economía boliviana
    [On the determination of income tax and its effects on the economic growth in Bolivi
    ," MPRA Paper 37211, University Library of Munich, Germany.

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