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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
Cavalcanti and Goncalvez (2006) also perform a sen-
sitivity analysis and find no problems when using values
of
µ
between 0 and 1, although Evans and Karras (1996)
have estimated a value of
µ
equal to 1.14 using a GMM es-
timator. We observe that when public consumption is pure
waste (
µ
=
0) the GDP growth rate is above 1 percent, but
welfare gains are negative. As we increase the parameter
towards 1, the rate of growth tends to decrease and welfare
gains tend to increase. It is also interesting to observe that
the welfare gains are sizeable when public consumption is
equally valued to private consumption (when
µ
=
1).This
happens because we consider public consumption as part
of the utility function. Recall again that public consump-
tion includes government expenditures on health and ed-
ucation. These last results suggest that if human capital
were more highly valued in Bolivia (through more spend-
ing on health and education), the economy would benefit
from positive welfare gains even if output growth is held
back.
The results of the exercises with commodity prices (rel-
ative prices) show that output and welfare are positively
correlated with those prices, particularly for hydrocarbons.
A 10-percent increase in hydrocarbon prices relative to the
baseline can lead to output and welfare gains of nearly 15
percent. Changes in agriculture and mining prices have
similar effects on growth and welfare.
Figure C.4
Figure C.5
Figure C.6
Analítika,
Revista de análisis estadístico
, 2 (2012), Vol. 4(2): 57-79
79