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Fiscal policy and economic growth: a simulation analysis for Bolivia
Analíti a
k
4
Revista de Análisis Estadístico
Journal of Statistical Analysis
calibration for the Bolivian economy. Then, in section 4,
we present the steady-state effects for the simulation along
with the dynamic effects for selected macroeconomic and
sectoral variables. Section 5 concludes the paper.
2 Fiscal policy in Bolivia
The bolivian economy has recorded fiscal surpluses
since 2006, mostly due to international economic growth
which led to higher export prices for the country’s main
exports together with more revenues from the Direct Tax
on Hydrocarbons and royalties, resulting in substantially
higher public revenues. Between 2004 and 2008, govern-
ment revenues increased from 28.5 percent of GDP to 48.4
percent of GDP, a huge 20 percentage point increase in
terms of GDP.
5
Figure 1 shows how these events have affected the fiscal
deficit as a percentage of GDP and how its path is closely
related to the economic growth rate. The fiscal deficit be-
gan to decline after 2002 and shifted to a surplus of 4.5 per-
cent of GDP in 2006, the highest surplus in recent years.
This fiscal balance remained positive through 2009.
Figure 1.
Fiscal surplus and economic growth (in percentage
points). Source: Central Bank of Bolivia.
The economic growth rate improved in 2002-2008 and
is positively correlated with public sector fiscal results.
The economy averaged 4.8 percent annual growth over the
2004-2008 period, with growth topping out at 6.1 percent
in 2008, the highest growth since 1975. This opens up an
important question: Can these revenues be used to sustain
economic growth?
Government expenditures as a share of GDP were fairly
steady until 2006 (aside from a slight decline in 2003) and
grew over the last 2 years of the period of analysis. Govern-
ment spending averaged 36 percent of GDP between 2000
and 2006 and rose to 42 percent and 45 percent of GDP re-
spectively in 2008 and 2009. Figure 2 shows that govern-
ment expenditures grew over these last years but was sur-
passed by revenue growth.
Figure 2.
Total expenditures and revenues for the non-financial
public sector (% of GDP). Source: Central Bank of Bolivia.
Figure 3.
Composition of current revenues in the non-financial
public sector (% of total). Source: UDAPE.
One explanation for the increase in government rev-
enues is ongoing increases in tax revenues. Total tax rev-
enues increased by an annual average of 27.82 percent
between 2005 and 2008. The main taxes are the Value
Added Tax (VAT) and the Direct Tax on Hydrocarbons
(DTH), which together represent 50 percent of total tax rev-
enues. The DTH, a tax on hydrocarbons exports, regis-
tered the largest average increase (of 52 percent), with the
greatest increase occurring in 2006, the year that Yacimien-
tos Petrolíferos Fiscales Bolivianos (YPFB), the national oil
company, was nationalized.
Figure 3 shows the composition of current revenues in
thenon-financial public sector. We can see that tax rev-
enues remain the main source of income, although non-tax
revenues increased after nationalization of YPFB in 2006.
Note that the hydrocarbon tax was an important source of
revenues in 2005 and 2006. In 2007 and 2008, revenues
from the hydrocarbons tax were largely replaced by non-
5
A point of comparison can be made with the U.S. federal government’s fiscal revenues, which have increased by 18.7 percent of GDP over the last
40 years (U.S. Congressional Budget Office, 2009).
Analítika,
Revista de análisis estadístico
, 2 (2012), Vol. 4(2): 57-79
59