Long-term Gain, Short-Term Pain: Assessing the Potential Impact of Structural Reforms in Chile

Marika Santoro

No 2015/282, IMF Working Papers from International Monetary Fund

Abstract: In this paper, I study the potential economic impact of the 2015-18 structural reform agenda in Chile, using the IMF dynamic general equilibrium model (GIMF). I find that the agenda has the potential to significantly increase Chile’s long-run GDP, although it may have some negative effects in the short term. Ensuring a smooth transition to a higher productive potential depends on three key dimensions: the credibility of the reforms, their effectiveness in closing structural gaps, and their speed of implementation. Badly designed reforms that remove only a very small fraction of the existing structural gaps, at a slow speed, and with little credibility, can greatly reduce the positive impact of the reform agenda on GDP.

Keywords: WP; Infrastructure; human capital; structural reforms; macroeconomic analysis; capital factor share parameter; infrastructure network; school voucher system; telecommunication infrastructure; cost of capital; investment goods; telecommunication industry; education quality; utility function; Chilean economy; Consumption; Asia and Pacific (search for similar items in EconPapers)
Pages: 35
Date: 2015-12-29
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