An Empirical Evaluation of a Fiscal Reaction Function for Colombia, 2000–2012

This paper aims to derive an optimal fiscal reaction function and empirically verify it for the colombian economy for the period 2000–1 to 2012–12. the reaction function uses taxes as a function of public expenditure, the output gap and the inflation rate. the model is verified through trend analysis, impulse response analysis, and with the generalized method of moments (gmm). the results show that the proposed variables explain a third of the variations in taxes.

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