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Efficiency and Welfare Effects of Fiscal Policy in Emerging Economies: The Case of Morocco

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  • Ahmed El Khalifi
  • Hicham Ouakil
  • José L. Torres

Abstract

This paper studies the welfare cost of fiscal policy in developing economies where a significant fraction of the population is government spending-dependent, using as an example Morocco. We develop a Dynamic General Equilibrium model representing an economy populated by three types of households: Standard Ricardian households with access to the financial market, households who supply labor but have no access to the financial market, and non-active government-dependent households (who behave as hand-to-mouth agents). The paper computes welfare changes of different tax rates and alternative spending policies and quantifies the trade-off of fiscal policy across the different groups of agents. We find that: (i) Distortions from some taxes can be positive due to the presence of public inputs; (ii) Output efficiency can be gained by changing the tax mix while keeping constant fiscal revenues; and (iii) Social welfare gains can be obtained by increasing public investment and reducing government consumption and keeping lump-sum transfers constant.

Suggested Citation

  • Ahmed El Khalifi & Hicham Ouakil & José L. Torres, 2024. "Efficiency and Welfare Effects of Fiscal Policy in Emerging Economies: The Case of Morocco," International Economic Journal, Taylor & Francis Journals, vol. 38(3), pages 507-530, July.
    • Handle: RePEc:taf:intecj:v:38:y:2024:i:3:p:507-530
    DOI: 10.1080/10168737.2024.2380455
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    Cited by:

    1. El Khalifi, Ahmed & Ouakil, Hicham, 2024. "Aligning Public Spending and Taxes in the Moroccan Economy: A Dynamic General Equilibrium Model analysis," MPRA Paper 121891, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

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