Budgetary Constitution and Equilibrium of Public Finances. Effects of the 1991 Constitution on the Political Economy of the Financing of Public Expenditure in Colombia

This paper seeks to explain the increase in the level of Colombian Central Government debt as a result of the change in the rules that restrict the decisions of fiscal policy –i.e. fiscal constitution- involved in the new Constitution. The paper assumes that the Government is an agent that weighs the costs and benefits of its decisions in a context of political and economic institutions. First, the main changes in the rules that apply to the financing alternatives for government spending, different from debt, are shown. Then, the main changes to the rules regarding the creation of debt. Lastly, it concludes that the change in the fiscal situation of the Government is an outcome of the reduction of the relative price of debt compared with other financing options.