Macroeconomics of public sector deficits: the case of Chile

Klaus Schmidt-Hebbel and Jorge Marshall

No 696, Policy Research Working Paper Series from The World Bank

Abstract: The authors analyze the structure of public deficits in Chile, distinguishing between consolidated nonfinancial public deficits and quasifiscal losses of the Central Bank - focusing on the determinants and sustainability of the deficits. In the framework of an estimated portfolio model, they simulate the path of domestic inflation and interest rates for money-financed and debt-financed deficits. Then they trace the effects of deficits, and their form of financing, on private consumption and investment - focusing on empirical estimates of the different channels through which public spending and taxation crowd in or crowd out private spending. Finally, they measure the spillover effects from the deficit to the real exchange rate and the trade surplus. Chile's successful experience suggests that fiscal stabilization is a prerequisite for structural reform - and that structural reform need not be postponed until stabilization is fully achieved.

Keywords: Economic Stabilization; Economic Theory&Research; Public Sector Economics&Finance; Environmental Economics&Policies; Macroeconomic Management (search for similar items in EconPapers)
Date: 1991-06-30
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Citations: View citations in EconPapers (10)

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