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Macroeconomics of public sector deficits : the case of Chile

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Author Info

  • Schmidt-Hebbel, Klaus
  • Marshall, Jorge

Abstract

The authors analyze the structure of public deficits in Chile, distinguishing between consolidated nonfinancial public deficits and quasifiscal losses of the Central Bank - focusing on the determinants and sustainability of the deficits. In the framework of an estimated portfolio model, they simulate the path of domestic inflation and interest rates for money-financed and debt-financed deficits. Then they trace the effects of deficits, and their form of financing, on private consumption and investment - focusing on empirical estimates of the different channels through which public spending and taxation crowd in or crowd out private spending. Finally, they measure the spillover effects from the deficit to the real exchange rate and the trade surplus. Chile's successful experience suggests that fiscal stabilization is a prerequisite for structural reform - and that structural reform need not be postponed until stabilization is fully achieved.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 696.

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Date of creation: 30 Jun 1991
Date of revision:
Handle: RePEc:wbk:wbrwps:696

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Related research

Keywords: Economic Stabilization; Economic Theory&Research; Public Sector Economics&Finance; Environmental Economics&Policies; Macroeconomic Management;

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Cited by:
  1. Vavouras, Ioannis S., 1999. "Public Sector Deficits: Their Economic and Policy Determinants in the Case of Greece," Journal of Policy Modeling, Elsevier, vol. 21(1), pages 89-100, January.
  2. Patricio Arrau & Jorge Quiroz & Rómulo Chumacero, 1992. "Ahorro Fiscal y Tipo de Cambio Real," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 29(88), pages 349-386.
  3. Cukierman, Alex & Kiguel, Miguel A. & Liviatan, Nissan, 1992. "How much to commit to an exchange rate rule : balancing credibility and flexibility," Policy Research Working Paper Series 931, The World Bank.
  4. Montiel, Peter J., 1993. "Fiscal aspects of developing countrydebt problems and debt and debt-service reduction operations : a conceptual framework," Policy Research Working Paper Series 1073, The World Bank.
  5. Rodrigo Cerda & Alvaro Donoso & Aldo Lema, 2003. "Fundamentos del Tipo de Cambio Real en Chile," Documentos de Trabajo 244, Instituto de Economia. Pontificia Universidad Católica de Chile..
  6. Soledad Arellano & Felipe Larraín, 1996. "Tipo de Cambio Real y Gasto Público: Un Modelo Econométrico para Chile," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(98), pages 47-76.

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