Sectoral Fiscal Multipliers and Budget Inflexibility: The Role of Allocative Inefficiency

Jose Gomez-Gonzalez, Oscar Valencia (), David Herrera and Steven Zapata

Working papers from Red Investigadores de Economía

Abstract: This paper studies fiscal multipliers in Colombia, an emerging economy with a high degree of inflexibility of expenditure at the sectoral level. The results show that the multiplier is almost twice as large in sectors in which the execution of flexible expenditure is favored over inflexible expenditure. This result is closely related to the fact that flexible expenditure is done in capital intensive sectors. Microsimulation estimations show that the reallocation of a 1% from inflexible to flexible spending has a positive effect of approximately 17% on the total fiscal multiplier. We provide empirical evidence of an inverted U-shaped fiscal multiplier on the reallocation effect across sectors.

Keywords: Fiscal multipliers; Spending reallocation; Emerging market economies; Colombia (search for similar items in EconPapers)
JEL-codes: E62 O23 (search for similar items in EconPapers)
Pages: 20
Date: 2020-07
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:rie:riecdt:59

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