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Assessing the Macroeconomic Effects of Fiscal Policy in Colombia

  • Ignacio Lozano


  • Karen Rodríguez


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.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 552.

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Handle: RePEc:bdr:borrec:552
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  1. Caldara, Dario & Kamps, Christophe, 2008. "What are the effects of fiscal policy shocks? A VAR-based comparative analysis," Working Paper Series 0877, European Central Bank.
  2. 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.
  3. Rodrigo Cerda & Hermann González & Luis Felipe Lagos, 2005. "Is Fiscal Policy Effective? Evidence for an Emerging Economy: Chile 1833-2000," Documentos de Trabajo 292, Instituto de Economia. Pontificia Universidad Católica de Chile..
  4. Jorge E. Restrepo & Hernán Rincón, . "Identifying Fiscal Policy Shocks In Chile And Colombia," Borradores de Economia 397, Banco de la Republica de Colombia.
  5. Ignacio Lozano & Jorge Toro, . "Fiscal Policy Throughout the Cycle: The Colombian Experience," Borradores de Economia 434, Banco de la Republica de Colombia.
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  9. Afonso, António & Ebert, Werner & Schuknecht, Ludger & Thöne, Michael, 2005. "Quality of public finances and growth," Working Paper Series 0438, European Central Bank.
  10. Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1994. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc.
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  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.
  13. Roberto Perotti, 2007. "In Search of the Transmission Mechanism of Fiscal Policy," NBER Working Papers 13143, National Bureau of Economic Research, Inc.
  14. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  15. Bénédicte Vidaillet & V. D'Estaintot & P. Abécassis, 2005. "Introduction," Post-Print hal-00287137, HAL.
  16. 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.
  17. Wolff, Guntram B. & Tenhofen, Jörn & Heppke-Falk, Kirsten H., 2006. "The macroeconomic effects of exogenous fiscal policy shocks in Germany: a disaggregated SVAR analysis," Discussion Paper Series 1: Economic Studies 2006,41, Deutsche Bundesbank, Research Centre.
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