Fiscal Consolidations in Commodity-Exporting Countries: A DSGE Perspective

Manuel González-Astudillo, Juan Guerra-Salas and Avi Lipton

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: We build a small open economy DSGE model to evaluate the macroeconomic e?ects of ?scal consolidations in commodity-exporting countries. The ?scal block includes productive public capital, utility-augmenting government consumption, transfers to hand-to-mouth households, and taxes on labor and capital income as well as consumption. A country risk premium that depends on the level of foreign debt is crucial for the transmission of ?scal policy. This premium in?uences consumption and saving decisions of the ?nancially unconstrained households, and the rest of the economy through general-equilibrium e?ects. We estimate the model with Bayesian methods using data from Ecuador, an economy with a high dependence on oil exports. We then study the macroeconomic e?ects of di?erent tax and expenditure instruments. We consider a full consolidation program following the agreement between Ecuador and the IMF for the 2020-2025 period. The program reduces the country premium, which promotes private investment. Consumption of ?nancially unconstrained households is adversely a?ected by higher labor income taxes, but consumption of hand-to-mouth households increases due to the expansion of government transfers under the program. In aggregate terms, GDP declines by about 1% relative to trend.

Date: 2024-06
New Economics Papers: this item is included in nep-dge, nep-ipr and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bcentral.cl/documents/33528/133326/DTBC_1015.pdf (application/pdf)

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:chb:bcchwp:1015

Access Statistics for this paper

More papers in Working Papers Central Bank of Chile from Central Bank of Chile Contact information at EDIRC.
Bibliographic data for series maintained by Alvaro Castillo ().