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Cyclicality of Fiscal Transfers for a Latin American Small Open Economy: The Perils of Earmarked Transfers

Author

Listed:
  • Javier Torres

    (Universidad del Pacífico)

  • Alexandra Málaga

    (Universidad del Pacífico)

  • Rodrigo Chang

    (Universidad del Pacífico)

Abstract

We construct the largest fiscal transfers database for Peru (from 1999 to 2015) to analyze the relationship between government transfers and the economic cycle. Although most transfers of social programs behave independently of the economic cycle, two of the largest transfer programs to sub-national governments, FONCOMUN and Windfall & Royalties transfers, are clearly procyclical. They are earmarked to the national Value-Added tax revenue and to the corporate tax of extractive industries, respectively. These transfer rules could lead to scarcity of resources for sub-national governments during a drop in terms-of-trade induced recession.

Suggested Citation

  • Javier Torres & Alexandra Málaga & Rodrigo Chang, 2019. "Cyclicality of Fiscal Transfers for a Latin American Small Open Economy: The Perils of Earmarked Transfers," Working Papers 155, Peruvian Economic Association.
    • Handle: RePEc:apc:wpaper:155
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    References listed on IDEAS

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    5. Carlos A Vegh & Guillermo Vuletin, 2014. "The Road to Redemption: Policy Response to Crises in Latin America," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 62(4), pages 526-568, November.
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    More about this item

    Keywords

    Economic Cycle; Fiscal Transfers;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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