Click on the image above to download (PDF).
Samuel Alarcon Gambarte
La Paz, september 2020
Since 2006, Bolivia began an intensive public investment program under its development plan. Fourteen years later, I analyze the role of this expansionary fiscal policy. In this regard, I develop a Dynamic Stochastic General Equilibrium Model for a small, open and developing country. Among the main results, I highlight that public investment has two roles in the Bolivian economy: positive externality and opportunity cost. First, an increase in public investment generates a positive externality allowing higher levels of economic growth as well as turns into a mechanism to cushion the negative effects of export price shocks. Second, the intensive use of resources for public investment has a crowding out effect on private investment, and deteriorates the public finances in the medium term with the increase of both public debt and fiscal deficit.
Keywords: Public investment, fiscal policy, business cycles, DSGE.
JEL Classification: E62, H5, E32.