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


  • Daney, Valdivia
  • Marcelo, Montenegro


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%.

Suggested Citation

  • Daney, Valdivia & Marcelo, Montenegro, 2009. "Bolivia’s fiscal rules: dynamic stochastic general equilibrium model approach," MPRA Paper 32114, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:32114

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    References listed on IDEAS

    1. Carlos Garcia & Jorge Restrepo, 2007. "How Effective is Government Spending in a Small Open Economy with Distortionary Taxes," ILADES-Georgetown University Working Papers inv188, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
    2. Smets, Frank & Wouters, Raf, 2002. "An estimated stochastic dynamic general equilibrium model of the euro area," Working Paper Series 0171, European Central Bank.
    3. Jordi Galí & J. David López-Salido & Javier Vallés, 2007. "Understanding the Effects of Government Spending on Consumption," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 227-270, March.
    4. Daney Valdivia, 2008. "¿Es Importante la Fijación de Precios para Entender la Dinámica de la Inflación en Bolivia?," Development Research Working Paper Series 02/2008, Institute for Advanced Development Studies.
    5. Jordi Galí & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
    6. Schmidt-Hebbel, Klaus & Tapia, Matias, 2002. "Inflation targeting in Chile," The North American Journal of Economics and Finance, Elsevier, vol. 13(2), pages 125-146, August.
    7. 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.
    8. 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, issue Mar.
    9. 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,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.
    10. 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.
    11. Favero, Carlo A., 2001. "Applied Macroeconometrics," OUP Catalogue, Oxford University Press, number 9780198296850.
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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 Bolivia]
      ," MPRA Paper 37211, University Library of Munich, Germany.

    More about this item


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

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles


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