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Assessing the Macroeconomic Effects of Fiscal

  • Ignacio Lozano Espitia


  • Karen Rodríguez

The focus of this paper is on the short-term macroeconomic effects of fiscalpolicy in Colombia in a structural vector autoregression context. Governmentspending shocks are found to have positive and significant effects on output,private consumption, employment, prices and short-term interest rates. Thecumulative output multiplier fluctuates between 1.12 and 1.19 from the first tothird year after the spending innovation. Shocks to direct taxation seem to beless efficient, because they mainly affect private investment, whereas shocks toindirect taxation do not seem to affect real activities significantly. From apolicy perspective, our results support the smoothing role of fiscal policy onoutput fluctuations, which implies its capacity to restore real activity effectivelyin critical times like the ones currently being forecast. From a theoreticalstandpoint, the results are consistent with real business cycle and Keynesianmodels of both traditional partial equilibrium and new general equilibriumtypes.Keywords:

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Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 005386.

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Length: 34
Date of creation: 02 Mar 2009
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Handle: RePEc:col:000094:005386
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  1. 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.
  2. 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.
  3. 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.
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  5. Jorge E. Restrepo & Hernán Rincón, . "Identifying Fiscal Policy Shocks In Chile And Colombia," Borradores de Economia 397, Banco de la Republica de Colombia.
  6. 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.
  7. Marcellino, Massimiliano, 2002. "Some Stylized Facts on Non-Systematic Fiscal Policy in the Euro Area," CEPR Discussion Papers 3635, C.E.P.R. Discussion Papers.
  8. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
  9. Ignacio Lozano & Jorge Toro, 2007. "Fiscal Policy Throughout the Cycle: The Colombian Experience," BORRADORES DE ECONOMIA 002730, BANCO DE LA REPÚBLICA.
  10. 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.
  11. Rodrigo Cerda & Hermann Gonzalez & Luis Felipe Lagos, 2006. "Is fiscal policy effective? Evidence for an emerging economy: Chile 1833-2000," Applied Economics Letters, Taylor & Francis Journals, vol. 13(9), pages 575-580.
  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. Afonso, António & Ebert, Werner & Schuknecht, Ludger & Thöne, Michael, 2005. "Quality of public finances and growth," Working Paper Series 0438, European Central Bank.
  14. Bénédicte Vidaillet & V. D'Estaintot & P. Abécassis, 2005. "Introduction," Post-Print hal-00287137, HAL.
  15. 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, Oxford University Press, vol. 117(4), pages 1329-1368.
  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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