Assessing the Macroeconomic Effects of Fiscal

Ignacio Lozano-Espitia and Karen Rodríguez

No 5386, Borradores de Economia from Banco de la Republica

Abstract: 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:

Keywords: fiscal policy; government spending; taxation; structural vector autoregression (search for similar items in EconPapers)
JEL-codes: C32 E62 H20 H50 (search for similar items in EconPapers)
Pages: 34
Date: 2009-03-02
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000094:005386

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