Informality and formality: Fiscal policy in DSGE model

Jesús Botero G. (), Christian Vargas (), Alvaro Hurtado Rendón () and Humberto Franco ()

No 10925, Documentos de Trabajo de Valor Público from Universidad EAFIT

Abstract: We develop a DSGE model of the Colombian economy to assess the effect of tax policy on informal employment and income distribution.The model recreates a small open economy, with persistent income inequality, a substantial degree of informality, and different possibilities of government intervention. This paper evaluates the consequences of government transfer payments to households with lower incomes. We find that although transfer payments have a positive effect on income distribution, financing them requires an adjustment in government finances (cut spending or increase revenue through the use of various taxes), have negative effects on the economic as a whole. ***** Desarrollamos un modelo DSGE de la economía colombiana para evaluar el efecto de la política fiscal sobre el empleo informal y distribución del ingreso. El modelo recrea una economía pequena y abierta, con la persistente desigualdad de ingresos, un alto grado de informalidad, y las diferentes posibilidades de intervención del gobierno. Este documento evalúa las consecuencias de los pagos de transferencia del gobierno a los hogares con ingresos más bajos. Encontramos que si bien los pagos de transferencias tienen un efecto positivo sobre la distribución del ingreso, su financiación requiere un ajuste en las finanzas públicas (reducir el gasto o aumentar los ingresos a través del uso de diversos impuestos), tienen efectos negativos sobre la economía en su conjunto.

Keywords: Public expenditure; exogenous shock; DSGE (search for similar items in EconPapers)
JEL-codes: D58 E62 (search for similar items in EconPapers)
Pages: 25
Date: 2014-03-11
New Economics Papers: this item is included in nep-dge, nep-iue, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://repository.eafit.edu.co/bitstream/handle/10 ... quence=1&isAllowed=y

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:col:000122:010925

Access Statistics for this paper

More papers in Documentos de Trabajo de Valor Público from Universidad EAFIT Contact information at EDIRC.
Bibliographic data for series maintained by Valor Público EAFIT - Centro de estudios e incidencia ().