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Towards Effective Social Insurance in Latin America: The Importance of Countercyclical Fiscal Policy

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Author Info
Miguel Braun
Luciano di Gresia
Abstract

Latin America is a volatile, crisis-prone region, with limited and inadequate social insurance. Therefore, the long-term as well as the recent poor suffer significantly during crises. Furthermore, social spending is procyclical in the region, but less so than total spending, indicating that the effectiveness of compensatory social policies designed to protect those vulnerable to crises is constrained by adjustments during recessions. The causes of procyclical fiscal policy lie in the political constraints on saving during expansions, combined with limited creditworthiness during recessions, and enhanced by economic volatility and a low share of automatic stabilizers in the budget. We evaluate policy options to reduce procyclicality of fiscal policy, such as stabilization funds, fiscal rules and reform of budget institutions, and argue in favor of integrated policy proposals based on more country-specific analysis, such as the Fiscal Responsibility Law in Brazil.

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Paper provided by Inter-American Development Bank, Research Department in its series RES Working Papers with number 4333.

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Date of creation: Jul 2003
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Handle: RePEc:idb:wpaper:4333

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Laura dos Reis & Paolo Manasse & Ugo Panizza, 2007. "Targeting the Structural Balance," RES Working Papers 4507, Inter-American Development Bank, Research Department. [Downloadable!]
  2. Leonardo Gasparini, 2003. "Argentina´s Distributional Failure: The role of Integration and Public Policies," Working Papers 0001, CEDLAS, Universidad Nacional de La Plata. [Downloadable!]
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