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Dynamic Effects of the Chilean Fiscal Policy

Author

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  • Antonio Lemus

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract
In Chile, the empirical literature studying the dynamic effects of fiscal policy and fiscal multipliers, using linear vector autoregression models, disagrees on the effects of government spending and taxes on output. In this paper, we bring new elements to this debate. We include the nonlinear dimension of vector autoregression models to answer if the state, "tight" or "normal", of the Chilean economy, affects fiscal policy effectiveness. Last, based on the nonlinear framework we question if monetary policy has an influence on the size of fiscal multipliers. We find that: (i) once using the same quarterly data, the size of fiscal multipliers not only varies depending on the identification strategy and the linear vector autoregression model used but also on the definitions of government spending and taxes considered; (ii) the government spending multiplier from the nonlinear framework differs, being about the unit in the "tight" regime and around -0.5 in the "normal" regime; (iii) government spending and tax multipliers in the nonlinear framework are smaller when monetary policy is taken into account, which influences the effectiveness of fiscal policy.

Suggested Citation

  • Antonio Lemus, 2018. "Dynamic Effects of the Chilean Fiscal Policy," Working Papers hal-04141693, HAL.
    • Handle: RePEc:hal:wpaper:hal-04141693
    Note: View the original document on HAL open archive server: https://hal.science/hal-04141693
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal Policy; Fiscal Multipliers; Vector Autoregression Models;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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