Bolivia’s Fiscal Rules: Dynamic Stochastic General Equilibrium Model Approach

Abstract:     
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 (DGSE) in line with the new macroeconomic vintage and using stylized facts for small open economy, we’re looking for a simulation of fundamentals’ responses or effects against different fiscal rulesapplied. In accordance with this 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%.

Number of Pages in PDF File: 30

Keywords: Government expenditure, fiscal rule, pass-through, rule-of-thumb households

JEL Classification: E32, E62

working papers series