Dealing with the Dutch Disease: Fiscal Rules and Macro-Prudential Policies
This paper evaluates from a welfare perspective three policy alternatives for dealing with Dutch disease problems originating from cyclical movements in commodity prices: fiscal rules for government expenditures, capital controls, and taxes on domestic lending. A DSGE model of a small open economy is developed, with a sectoral decomposition that features three distinctive characteristics: financial frictions, a learning-by-doing externality in the industrial sector, and a fraction of households being non-Ricardian (credit constrained). The model is calibrated using Chilean data. For each policy tool, optimal simple rules are analyzed from a welfare (Ramsey) perspective, describing how different households rank the several policy alternatives, and studying how each of the models features shapes the optimal policy design. A general conclusion of the analysis is that the included Dutch disease inefficiencies are of quantitatively limited relevance in analyzing the desirability of these policies from a welfare perspective.
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| Format: | Working Papers biblioteca |
| Language: | English |
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Inter-American Development Bank
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| Subjects: | Fiscal Management, Policy Evaluation, Fiscal Policy, Taxation, Government Budget, F41 - Open Economy Macroeconomics, Dutch Disease;Capital controls;Macro-prudential policies;Fiscal rules;Fiscal procyclicality, |
| Online Access: | http://dx.doi.org/10.18235/0011700 https://publications.iadb.org/en/dealing-dutch-disease-fiscal-rules-and-macro-prudential-policies |
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