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dc.titleFrom Macroeconomic Stability to Welfare: Optimizing Fiscal Rules in Commodity-Dependent Economies
dc.contributor.authorHeresi, Rodrigo
dc.contributor.authorVillacreces Villacis, Daniela
dc.contributor.orgunitDepartment of Research and Chief Economist
dc.coverageChile
dc.date.available2023-10-13T00:10:00
dc.date.issue2023-10-13T00:10:00
dc.description.abstractWe study the welfare and macroeconomic implications of simple and implementable fiscal policy rules in commodity-dependent economies, where a large share of output, exports, and government revenues depend on exogenous and volatile commodity prices. Using a multi-sector New Keynesian model estimated for the Chilean economy, we find that the welfare-maximizing fiscal policy involves an actively countercyclical response to the tax revenue cycle. In contrast, the optimized response to the commodity revenue cycle is procyclical, given the high persistence and the economic dynamics induced by international commodity price shocks. The optimized fiscal rules deliver significant welfare gains of 0.52% of lifetime consumption for non-Ricardian consumers and 0.06% for Ricardian consumers relative to a benchmark acyclical policy. Lump-sum social transfers are the best instrument to implement the fiscal rule, yielding higher welfare gains, enabling reductions in macroeconomic volatility, and producing only moderate additional volatility in government spending.
dc.format.extent43
dc.identifier.doihttp://dx.doi.org/10.18235/0005197
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/From-Macroeconomic-Stability-to-Welfare-Optimizing-Fiscal-Rules-in-Commodity-Dependent-Economies-0.pdf
dc.language.isoen
dc.publisherInter-American Development Bank
dc.subjectFiscal Policy
dc.subjectMacroeconomy
dc.subjectFiscal Rule
dc.subjectEconomy
dc.subjectInvestment
dc.subjectTax Revenue
dc.subjectCommodity Price
dc.subjectPublic Expenditure
dc.subjectSmall Business
dc.subjectWage
dc.subject.jelcodeE62 - Fiscal Policy
dc.subject.jelcodeF41 - Open Economy Macroeconomics
dc.subject.jelcodeQ32 - Exhaustible Resources and Economic Development
dc.subject.keywordsFiscal Rules;Raw materials sector;Open economy macroeconomics
idb.identifier.pubnumberIDB-WP-01511
idb.operationRG-K1098
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