Publication: Fiscal policy in an SNA-Compliant DSGE model for emerging markets
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Abstract
Fiscal policy is often one of the economic Achilles heels of emerging markets. Therefore, adequately modeling it becomes crucial to understanding the effects of shocks impacting this class of economies. This paper seeks to make a new proposal on how to model an emerging market such as Brazil, with a particular emphasis on the fiscal side. To that end, we build a medium-scale open-economy DSGE model, enriched with a detailed government structure and a comprehensive array of fiscal tools. We then compare the effects of some relevant shocks to those generated by the Central Bank of Brazil’s DSGE workhorse model, SAMBA. Additionally, we analyze several fiscal structural reforms that have been suggested or implemented within the last decade. Our results show that our model does a good job of reproducing the movements of key economic variables, shedding light on the fiscal dynamics and their interactions with monetary policy and external shocks. Introducing Stone–Geary (subsistence) preferences for non-Ricardian households strengthens empirical realism without altering our main conclusions.
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This study presents a medium-scale DSGE model with an enhanced fiscal block that is fully consistent with the System of National Accounts (SNA). The framework integrates a detailed government structure and a wide set of fiscal instruments, which allows for a more precise and transparent evaluation of fiscal policy compared with conventional DSGE models.
In a comparative assessment with the Central Bank of Brazil’s SAMBA model, our SNA-compliant DSGE replicates the behavior of key macroeconomic indicators under different shocks. Its fiscal architecture provides policymakers with richer insight into the consequences of fiscal reforms and targeted measures, making it a reliable analytical tool. Furthermore, the model can accommodate Brazil-specific fiscal scenarios—such as the administrative reform, a recurring headline in the Brazilian media—, which underscores its practical policy relevance.
We further test robustness by incorporating Stone-Geary (subsistence) preferences for non-Ricardian households. The findings are materially unaffected, reinforcing that our conclusions are not model-specification dependent.
Overall, the results highlight the importance of accounting for the complex interplay between fiscal policy, monetary rules, and external shocks in emerging economies. This research thus contributes a robust framework that is particularly well-suited to analyzing fiscal dynamics in contexts where institutional features and government accounts are critical.
Bibliographic reference
Costa-Junior, C., Gadelha, S.d.B. & Garcia-Cintado, A. Fiscal Policy in an SNA-Compliant DSGE Model for Emerging Markets. Open Econ Rev (2025). https://doi.org/10.1007/s11079-025-09840-6