An RBC model with a rich fiscal sector

Abstract

Contributing to the general understanding of fiscal policy e ectiveness, this study consists in the reformulation and estimation of the DSGE model developed in Azevedo and Ercolani (2012), to measure the potential relations between the private sector and the consumption and investment components of government expenditures. The estimation results show that public consumption and capital have both a substitutability e ect on private factors. For the study of the dynamic e ects, the model is augmented with strict fiscal rules, whose imposition creates a "crowding-out" e ect of the simulated fiscal policy shocks on government consumption and investment.