Deficit Financed Public Expenditure in Argentina: A Structural Vector Autoregression Analysis

Mitkov, Yuliyan and Pericon, Osvaldo (2012): Deficit Financed Public Expenditure in Argentina: A Structural Vector Autoregression Analysis.

Abstract

The goal of the paper is to analyze the importance of government debt in the propagation of fiscal shocks in the Argentine economy. For that reason we augment a standard fiscal policy vector Autoregression with the nominal debt to GDP ratio taken from a recently compiled IMF database. The main finding is that government debt has a crucial role for the implications of the model, and that the omission of the feedback of the debt (as a ratio of GDP) to the other variables in the system leads to very different conclusions for the effect of deficit finance government spending on the economy. Finally, we argue that not adding a measure of debt into the model is equivalent to assuming that debt as percentage of GDP is not changing following a deficit financed fiscal shock, which is in direct contraction to the implications of the optimal fiscal policy models.

• Item Type: MPRA Paper
• Language: English
• Keywords: Fiscal Policy; Vector Autoregression
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E65 - Studies of Particular Policy Episodes; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C15 - Statistical Simulation Methods: General

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