Debt Erosion: Asymmetric Response to Demand and Supply Shocks
In: IREF-D-23-00698
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In: IREF-D-23-00698
SSRN
In: World development: the multi-disciplinary international journal devoted to the study and promotion of world development, Band 168, S. 1-17
World Affairs Online
In: World development: the multi-disciplinary international journal devoted to the study and promotion of world development, Band 168, S. 106250
In order to enhance fiscal sustainability and regain 'investment grade' credit rating, in 2011 Colombia implemented a fiscal rule (FR) on the Central Government's structural balance. Investment grade was rapidly attained, and FR targets were complied with, until 2019. Using the Synthetic Control Method, we provide evidence that the FR promoted fiscal discipline. Nevertheless, public debt has increased continuously and is now expected to exceed 60 percent of GDP, in large part driven by the pandemic. We argue that the FR should be reformed so as to incorporate a debt anchor. Using a regime change model and the IMFs buffer risk methodology, we show that the prudent debt level should not exceed 48 percent of GDP and that in order to achieve this in the medium term, a policy mix increasing revenues to 17.8 percent of GDP (from 15.5 percent during 2016-2019) and reducing primary expenditure to 15 percent (from 16 percent during 2016-2019) is required. FR's performance would also benefit from changes in its institutional design.
BASE
This paper analyzes the effects of recent Venezuelan immigration to Colombia on the fiscal balance, the labor market, and economic growth. For this purpose, we built a dynamic general equilibrium model with a search and matching structure in the labor market. The higher fiscal spending to address immigration negatively impacts the government's budget in the short term, which is offset by higher output, consumption, and employment level, increasing the government's revenues mainly through indirect tax collection. The effect on the labor market is different for unskilled workers--whose higher supply generates a negative effect on wages and an increase in the unemployment rate--and skilled workers, who benefit from higher wages and lower unemployment. These changes in the labor market affect the government's revenue, resulting, in the long term, in positive fiscal dividends of migration.
BASE
In: Center for Research in Economics and Finance (CIEF), Working Papers, No. 19-11, 2019
SSRN
Working paper
In: Economic change & restructuring, Band 56, Heft 6, S. 4629-4660
ISSN: 1574-0277