Question

Can anyone please help me about Venezuela in analysis of fiscal policy: the venezuala government agency in charge of this(.e.g Ministry of Finance/Department of Treasury), its recent tax and government spending changes, the budget situation( surplus/deficit), the importance of general government expenditure in GDP.

And please draw AS AD diagram to illustrate the impacts of the adjustment in its fiscal policy.

4 countries: Venezuela, South Africa, Turkey, Spain Version 2- Fiscal Policy For the specific country that you have chosen, please write a report on its fiscal policy. Your report should contain the following information. Produce a macroeconomic snapshot (growth rate, inflation rate, unemployment rate, population, . Analysis of fiscal policy: the government agency in charge of this (.e-g Ministry of Finance/Department of Treasury), its recent tax and government spending changes, the budget situation (surplus/deficit), the importance of general government expenditure in GDP. Assess impacts of such policies if any (based on diagram). Draw AS AD diagram to illustrate the impacts of the adjustment in its fiscal policy Compare the same policy between different countries, highlighting the key characteristic of your chosen country, incorporate the findings from in class discussion into the final work . Note: In the last report, you are expected to search for data on yourselves. Recommended sources are World Bank, IMF, OECD dato, or the national statistics agencies of countries. Make sure you properly cit data sources in your report. Specifically in the final essay, you will: Produce a macroeconomic snapshot (growth rate, inflation rate, unem Analyse one out of three policies: fiscal policy, monetary policy, open macroeconomics. Assess impacts of such policies if any population, geographical/demographical characteristics....). Fiscal policy: short run and long run, tax and government spending changes Compare the same policy between different countries, hightling the key characteristic of their chosen country, incorporate the findings from in class discussion into the final work

Answer 1

It is hard to convey the severity of Venezuela’s unfolding crisis. Its extent is astounding: the economy shrank by 10% last year, and will be 23% smaller than in 2013 by the end of this year, according to IMF forecasts. Inflation may exceed 1,600% this year.

Analysis of Venezuelan fiscal policy: The Venezuelan fiscal accounts generally showed surpluses until mid-1980s, partly due to the immense oil income. A subsequent drop in oil prices triggered a fiscal deficit of 4% which increases in coming years.

There are multiple Venezuelan government agencies in charge of fiscal policies. The agency in charge of long-term economic planning is Cordiplan, and the agency in charge of expenditures and revenues for each financial year is the Budget Office (of the Ministry of Finance). Cordiplan has a wider range and is responsible for regional governments, enterprises, social security systems and so on. The Central Bank of Venezuela also worked on several revisions of the fiscal policy, to improve the bank's control over money supply - the most important policy change being the government's decision to allow the interest rate to fluctuate with market rates. While this was a risky move, and led to initial inflation effect, it offered several incentives for savings, and attracted a lot of capital. The fiscal policy was stable, leading to general price stability, annual price increases were minimal until the late 1990s.

Among recent tax changes, value-added tax was added in 1990s to widen the revenue base. Prior to this, several tax exemptions and allowances (and sometimes evasion!) reduced the effectiveness of fiscal policy. However, this is not to say that taxes did not constitute a major part of the revenue - in fact, the contribution was so great that lack of taxpayers led to revenue losses. In the early 1990s, tax contributed to 80% of the total revenue (the other part coming from royalties and other fees). Tax on petroleum (a major source of income initially) formed 55% of the total revenue - more than any other contributing factor. Government spending shot to a peak in the mid-1980s, and reduced slowly later on. Interest payments represented around 11% of the total expenditures in the 1980s, a value that did not fluctuate much in the coming decade. It is interesting to note that more than half of the interest payments serviced foreign debts.

The budget situation: Government budget is an itemized account of the payments received by government (taxes and other fees) and the payments made by government (purchases and transfer payments). A budget deficit occurs when an government spends more money than it takes in. Initially, Cordiplan and the Budget Office refused to cooperate and economic planning and budgeting suffered as a result of this. Most five-year plans, and public sector investments lacked substance and were more or less, ambiguous. In recent years, Venezuelan economy has contracted by 35% since 2013 (this, in fact, is much larger than the US experienced during the Great Depression!). Venezuela is currently facing a severe economic crisis, due to inflation, shortage of food, substantial budget deficits, and deteriorating living conditions. According to a reliable economics expert, "Venezuela recorded a Government Budget deficit equal to 20 percent of the country's Gross Domestic Product in 2015. Government Budget in Venezuela averaged -3.41 percent of GDP from 1990 until 2015, reaching an all time high of 3.79 percent of GDP in 1991 and a record low of -20 percent of GDP in 2015."

Importance of general government expenditure in GDP: While Venezuela is the sixth largest oil producing country (which adds revenue to the budget), it imports almost everything else, including day to day items like toilet paper. The result? Substantial government spending which makes a significant dent in the GDP, and increase in debts. In 2017, the estimated government expenditure in Venezuela amounted to about 40.88 percent of the country's gross domestic product. The highest impact was in 2014, when government spending accounted for 46.57% of the GDP. The ratio is projected to hit 39.05% by 2022, an optimistic figure as compared to the financial crisis the country seems to have fallen in.



While this is a very rough AD/AS diagram, it gives an idea of the situation in Venezuela. As price level increases, out AS curve also shifts, resulting in a decrease in GDP.