Abstract
In this paper we implement a sequential dynamic computable general equilibrium model combined with microsimulations to assess (1) the short- and long-run economic impacts of a gradual reduction in the export tax that was introduced during the economic crisis that hit Argentina at the end of 2001, and (2) the impact of a decrease in the world prices of food products, one of the country’s main export product. Our results show that the elimination of the export tax would have different long run effects depending on the fiscal instrument that is used by the government to compensate for the loss in tax revenue. On the one hand, when the government budget is equilibrated by an increased deficit, the average annual growth rate for 2008-2015 is lower than in the baseline scenario. On the other hand, when the government budget is equilibrated by an increased direct tax rate, there is a long-run positive effect on growth. In any case, the employment level is lower and the price of food items is higher. Therefore, the poverty headcount ratio increases. As expected, a reduction in the world price of food items (i.e., a worsening in Argentina’s terms of trade) would impact negatively on the country’s GDP growth rate and poverty, particularly in the rural areas.
Highlights
Since the 1970s Argentina has experienced several major macroeconomic crises and episodes of structural change
Cicowiez et al (2010) used a static computable general equilibrium (CGE)-microsimulation model linked to the World Bank LINKAGE model to study the impact of global agricultural liberalization in Argentina using legal export tax rates, which are higher than the effective rates
In order to produce a baseline scenario, total factor productivity is adjusted to generate an annual growth rate for real GDP at factor cost that replicates the behavior of the Argentine economy for the period 2005-2008 and decreases thereafter, reaching an annual growth rate of 3.5 percent in year 2010.16
Summary
Since the 1970s Argentina has experienced several major macroeconomic crises and episodes of structural change. A severe macroeconomic crisis in the mid-1970s under the Peronist administration was followed by some structural reforms carried out by the military regime. The debt crisis of the early 1980s hit the Argentinean economy, which entered a phase of deep recession. The Peronist administration that took power in 1989 introduced a wide range of macro and marketbased reforms in the early 1990s. The 1990s ended with another recession, which was followed by a major breakdown; the 2001/02 crisis implied a fall in GDP of more than 15 percent, a 200 percent devaluation of the exchange rate, public debt default, restrictions on withdrawing bank deposits, 40.5 percent inflation during 2002, an increase in the unemployment rate to 24 percent, and an increase in the poverty rate to 54.3 percent in 2003. The economy strongly recovered during the 2000s, reaching levels of activity similar to those in the 1990s and a poverty rate of 27 percent in 2006
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