Macroeconomic Effects of Fiscal Policy during the Covid-19 Crisis: Evidence from Bolivia at a Regional Level

Abstract

This paper evaluates the impact of the fiscal policy applied in Bolivia during the Covid-19 crisis at a regional level. It includes two analyses: the economic slowdown at a regional level analyzed through a mixed frequency Bayesian var with a stochastic volatility model, and the impact and effectiveness of the fiscal policy using a time-varying parameter var model. The results indicate that the pandemic had a heterogeneous effect on the region’s economic activity and the capital expenditure from the national treasury was the most effective fiscal policy to reduce the recessive effects of the crisis. We also noted that some regions positively reacted to regional and local government capital expenditure.

Keywords

• Fiscal policy
• Covid-19
• Shocks
• Economic cycles
• Mixed frequency vector autoregressions
• Stochastic volatility