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Assessing the Macroeconomic Effects of Fiscal Policy in Colombia

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  • Ignacio Lozano

    ()

  • Karen Rodríguez

    ()

Abstract

The focus of this paper is on the short-term macroeconomic effects of fiscal policy in Colombia in a structural vector autoregression context. Government spending shocks are found to have positive and significant effects on output, private consumption, employment, prices and short-term interest rates. The cumulative output multiplier fluctuates between 1.12 and 1.19 from the first to third year after the spending innovation. Shocks to direct taxation seem to be less efficient, because they mainly affect private investment, whereas shocks to indirect taxation do not seem to affect real activities significantly. From a policy perspective, our results support the smoothing role of fiscal policy on output fluctuations, which implies its capacity to restore real activity effectively in critical times like the ones currently being forecast. From a theoretical standpoint, the results are consistent with real business cycle and Keynesian models of both traditional partial equilibrium and new general equilibrium types.

Suggested Citation

  • Ignacio Lozano & Karen Rodríguez, 2009. "Assessing the Macroeconomic Effects of Fiscal Policy in Colombia," Borradores de Economia 552, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:borrec:552
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    References listed on IDEAS

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    1. Ignacio Lozano & Jorge Toro, 2007. "Fiscal Policy Throughout The Business Cycle: The Colombian Experience," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 25(55), pages 12-39, December.
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    6. Caldara, Dario & Kamps, Christophe, 2008. "What are the effects of fiscal policy shocks? A VAR-based comparative analysis," Working Paper Series 877, European Central Bank.
    7. Pappa, Evi, 2005. "New-Keynesian or RBC Transmission? The Effects of Fiscal Shocks in Labour Markets," CEPR Discussion Papers 5313, C.E.P.R. Discussion Papers.
    8. Bénédicte Vidaillet & V. D'Estaintot & P. Abécassis, 2005. "Introduction," Post-Print hal-00287137, HAL.
    9. Roberto Perotti, 2008. "In Search of the Transmission Mechanism of Fiscal Policy," NBER Chapters,in: NBER Macroeconomics Annual 2007, Volume 22, pages 169-226 National Bureau of Economic Research, Inc.
    10. Ignacio Lozano & Jorge Toro, 2007. "Fiscal Policy Throughout the Cycle: The Colombian Experience," BORRADORES DE ECONOMIA 002730, BANCO DE LA REPÚBLICA.
    11. Tenhofen Jörn & Wolff Guntram B. & Heppke-Falk Kirsten H., 2010. "The Macroeconomic Effects of Exogenous Fiscal Policy Shocks in Germany: A Disaggregated SVAR Analysis," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 230(3), pages 328-355, June.
    12. Fatás, Antonio & Mihov, Ilian, 2001. "The Effects of Fiscal Policy on Consumption and Employment: Theory and Evidence," CEPR Discussion Papers 2760, C.E.P.R. Discussion Papers.
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    15. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    16. Francisco de Castro, 2006. "The macroeconomic effects of fiscal policy in Spain," Applied Economics, Taylor & Francis Journals, vol. 38(8), pages 913-924.
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    Cited by:

    1. Hernando Vargas & Andrés Gonzalez & Ignacio Lozano, 2012. "Macroeconomic effects of structural fiscal policy changes in Colombia," BIS Papers chapters,in: Bank for International Settlements (ed.), Fiscal policy, public debt and monetary policy in emerging market economies, volume 67, pages 119-160 Bank for International Settlements.
    2. Şen, Hüseyin & Kaya, Ayşe, 2017. "How large are fiscal multipliers in Turkey?," EconStor Preprints 162763, ZBW - German National Library of Economics.
    3. Andrés González & Martha López & Norberto Rodríguez & Santiago Téllez, 2014. "Fiscal Policy in a Small Open Economy with Oil Sector and non-Ricardian Agents," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE, November.
    4. Carrillo, Paul A., 2010. "“Modelo Dinámico para Análisis y Pronóstico del Producto Interno Bruto”: Un Enfoque Fiscal Aplicando un Modelo SVAR
      [Dynamic Model for Analysis and Forecast of Gross Domestic Product': A Fiscal App
      ," MPRA Paper 32005, University Library of Munich, Germany.
    5. repec:bdr:ensayo:v:35:y:2017:i:83:p:161-187 is not listed on IDEAS
    6. Şen, Hüseyin & Kaya, Ayşe, 2015. "Growth enhancing effect of discretionary fiscal policy shocks: Keynesian, Weak Keynesian or Non-Keynesian?," MPRA Paper 65976, University Library of Munich, Germany, revised 05 Aug 2015.
    7. Carrillo, Paul A., 2010. "Efectos Macroeconómicos de la Política Fiscal en Ecuador 1993-2009
      [Macroeconomic Effects of Fiscal Policy in Ecuador 1993-2009]
      ," MPRA Paper 34436, University Library of Munich, Germany, revised Oct 2011.
    8. Hernán Rincón & Diego Rodríguez & Jorge Toro & Santiago Téllez, 2017. "FISCO: modelo fiscal para Colombia," Revista Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 35(83), pages 161-187, Junio.
    9. Hernando Vargas & Andrés González & Ignacio Lozano, 2015. "Macroeconomic Gains from Structural Fiscal Policy Adjustments: The Case of Colombia," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Spring 20), pages 39-81, February.
    10. Cernadas, Luis, 2010. "Efectos macroeconómicos de la política fiscal: Evidencia empírica para Bolivia
      [Macroeconomic effects of fiscal policy: Empirical evidence from Bolivia]
      ," MPRA Paper 39696, University Library of Munich, Germany, revised 2011.
    11. repec:eme:jfeppp:jfep-07-2016-0051 is not listed on IDEAS

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