Efficiency and Welfare Effects of Fiscal Policy in Emerging Economies: The Case of Morocco

Ahmed El Khalifi, Hicham Ouakil and Jose Torres ()

International Economic Journal, 2024, vol. 38, issue 3, 507-530

Abstract: This paper studies the welfare cost of fiscal policy in developing economies where a significant fraction of the population is government spending-dependent, using as an example Morocco. We develop a Dynamic General Equilibrium model representing an economy populated by three types of households: Standard Ricardian households with access to the financial market, households who supply labor but have no access to the financial market, and non-active government-dependent households (who behave as hand-to-mouth agents). The paper computes welfare changes of different tax rates and alternative spending policies and quantifies the trade-off of fiscal policy across the different groups of agents. We find that: (i) Distortions from some taxes can be positive due to the presence of public inputs; (ii) Output efficiency can be gained by changing the tax mix while keeping constant fiscal revenues; and (iii) Social welfare gains can be obtained by increasing public investment and reducing government consumption and keeping lump-sum transfers constant.

Date: 2024
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Working Paper: Efficiency and Welfare Effects of Fiscal Policy in Emerging Economies: The Case of Morocco (2022)
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DOI: 10.1080/10168737.2024.2380455

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