Poverty, Indigence and Public Investment in Bolivia: A Simulation Analysis

The study of the impact of public investment on poverty is currently of particular importance due to, among other factors, the commitments that several countries have acquired in the framework of the Millennium Development Goals and the current political situation which gives a more prominent role the government in the economy. We use a general equilibrium model to analyze the impact of public investment on income from various sectors of the economy. Subsequently, we use these results to impute income in the MECOVI 2007 survey. In this way, we calculate various measures of poverty and indigence, and analyze its evolution over time. The estimated measurements indicate that public investment has a positive effect in reducing poverty and indigence in Bolivia, however this effect is small. The most important results are evident in the headcount index that is reduced about 3 points in a scenario of high public investment and 2 points in a scenario like the current investment. However, the results for the poverty gap and severity of poverty and indigence are more modest.