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dc.titleA Fiscal Rule to Achieve Debt Sustainability in Colombia
dc.contributor.authorArbeláez, María Angélica
dc.contributor.authorBenítez, Miguel
dc.contributor.authorSteiner, Roberto
dc.contributor.authorValencia, Oscar
dc.contributor.orgunitDepartment of Research and Chief Economist
dc.coverageColombia
dc.date.available2021-02-12T17:00:00
dc.date.issue2021-02-12T17:00:00
dc.description.abstractIn 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.
dc.format.extent52
dc.identifier.doihttp://dx.doi.org/10.18235/0003048
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/A-Fiscal-Rule-to-Achieve-Debt-Sustainability-in-Colombia.pdf
dc.language.isoen
dc.mediumAdobe PDF
dc.publisherInter-American Development Bank
dc.subjectPublic Investment
dc.subjectGovernment Budget
dc.subjectPublic Debt
dc.subjectFiscal Sustainability
dc.subjectGDP Growth
dc.subjectFiscal Rule
dc.subjectOil Price
dc.subjectGross Domestic Product
dc.subjectSynthetic Control Method
dc.subject.jelcodeH30 - Fiscal Policies and Behavior of Economic Agents: General
dc.subject.jelcodeE62 - Fiscal Policy
dc.subject.jelcodeH60 - National Budget, Deficit, and Debt: General
dc.subject.jelcodeE37 - Forecasting and Simulation: Models and Applications
dc.subject.jelcodeH42 - Publicly Provided Private Goods
dc.subject.keywordsFiscal Rules;Public Debt;Synthetic control method;Debt anchor
dc.typeWorking Papers
idb.identifier.pubnumberIDB-WP-01187
idb.operationRG-K1198
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