Discipline, Stability, and Sustainability in Venezuelan Public Finance

Abstract

The objective of the proposal of a system of fiscal rules for Venezuela is twofold: to achieve the stabilization and sustainability of public finances, and to provide foundations for policies aimed at restoring the country’s basic macroeconomic balances and a sustained medium and long-term growth path. Before presenting such system, we offer an overview of the current state of the subject on fiscal rules and – being Venezuela an oil country – focus on their main aspects and restrictions in natural resource economies. To evaluate the proposed system of fiscal rules, we calibrate and simulate a tailored model for the Venezuelan case and perform the estimations in the context of likely short and medium-term macroeconomic scenarios. The results of the exercise allow us to infer its feasibility and convenience if the fiscal rules proposed are implemented after a process of fiscal consolidation and restoration of basic macroeconomic equilibria.