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Fiscal Policy in Latin America: Countercyclical and Sustainable at Last?

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  • Christian Daude
  • Ángel Melguizo
  • Alejandro Neut

Abstract

This paper analyses fiscal policy for several economies in Latin America, from the early nineties to the 2009 crisis. We present original estimates of cyclically-adjusted public revenues for Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru and Uruguay implementing the standardised OECD methodology and extending it to include commodity cycles, which have a direct and significant effect on the fiscal balance of several Latin American countries. Based on these estimates, we evaluate the size of automatic tax stabilisers and the cyclicality of discretionary fiscal policy. Additionally, we highlight the uncertainty stemming from the estimation of the output gap, due to large and simultaneous cyclical, temporary and permanent shocks in several Latin American economies. Cette étude analyse la politique budgétaire dans huit économies d’Amérique Latine, à partir du début des années 1990 et jusqu’à 2009. Nous étudions les estimations des composantes structurelles et cyclique des recettes publiques en l’Argentine, le Brésil, le Chili, la Colombie, le Costa Rica, le Méxique, le Pérou et l’Uruguay, en utilisant la méthodologie de l’OCDE, et en ajoutant l’effet des prix des matières premières, qui ont un impact significatif sur le solde budgétaire en Amérique Latine. A partir de ces résultats, l’étude évalue l'ampleur des stabilisateurs automatiques, et l’stabilisation de la politique budgétaire discrétionnaire. Finalement, nous soulignons l’incertitude de l’estimation de l’écart de production en raison des larges chocs cycliques, temporaires et permanents dans plusieurs économies d’Amérique Latine.

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Development Centre Working Papers with number 291.

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Date of creation: 25 Aug 2010
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Handle: RePEc:oec:devaaa:291-en

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Keywords: public finances; fiscal policy; business cycle; finances publiques; politique budgétaire; cycle économique;

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References

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  1. Rolando Avendaño & Helmut Reisen & Javier Santiso, 2008. "The Macro Management of Commodity Booms: Africa and Latin America's Response to Asian Demand," OECD Development Centre Working Papers 270, OECD Publishing.
  2. Fatas, Antonio & Mihov, Ilian, 2001. "Government size and automatic stabilizers: international and intranational evidence," Journal of International Economics, Elsevier, vol. 55(1), pages 3-28, October.
  3. Mark Aguiar & Gita Gopinath, 2004. "Emerging market business cycles: the cycle is the trend," Working Papers 04-4, Federal Reserve Bank of Boston.
  4. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
  5. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
  6. Luiz de Mello & Diego Moccero, 2006. "Brazil's Fiscal Stance during 1995-2005: The Effect of Indebtedness on Fiscal Policy Over the Business Cycle," OECD Economics Department Working Papers 485, OECD Publishing.
  7. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  8. Talvi, Ernesto & Vegh, Carlos A., 2005. "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics, Elsevier, vol. 78(1), pages 156-190, October.
  9. Michael Gavin & Roberto Perotti, 1997. "Fiscal Policy in Latin America," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 11-72 National Bureau of Economic Research, Inc.
  10. Jorge C. Rodriguez & Carla R. Tokman & Alejandra C. Vega, 2007. "Structural Balance Policy in Chile," OECD Journal on Budgeting, OECD Publishing, vol. 7(2), pages 59-92.
  11. Gali, Jordi, 1994. "Government size and macroeconomic stability," European Economic Review, Elsevier, vol. 38(1), pages 117-132, January.
  12. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-61, September.
  13. Aguiar, Mark & Gopinath, Gita, 2007. "Emerging Market Business Cycles: The Cycle is the Trend," Scholarly Articles 11988098, Harvard University Department of Economics.
  14. Ignacio Lozano & Jorge Toro, 2007. "Fiscal Policy Throughout The Business Cycle: The Colombian Experience," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
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Cited by:
  1. Ercio Muñoz S., 2013. "Precio de Materias Primas y Spread Soberano en Economías Emergentes ¿Importa la Concentración de las Exportaciones?," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 16(1), pages 100-121, April.
  2. Byrne, Joseph P. & Fazio, Giorgio & Fiess, Norbert, 2013. "Primary commodity prices: Co-movements, common factors and fundamentals," Journal of Development Economics, Elsevier, vol. 101(C), pages 16-26.
  3. Daude, Christian & Melguizo, Ángel & Neut, Alejandro, 2011. "Fiscal policy in Latin America: Countercyclical and sustainable?," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 5(14), pages 1-29.
  4. Ivanyna, Maksym & von Haldenwang, Christian, 2012. "A comparative view on the tax performance of developing countries: Regional patterns, non-tax revenue and governance," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(32), pages 1-44.
  5. Pablo Lopez Murphy & Mauricio Villafuerte & Rolando Ossowski, 2010. "Riding the Roller Coaster," IMF Working Papers 10/251, International Monetary Fund.
  6. Annabelle Mourougane, 2011. "Refining Macroeconomic Policies to Sustain Growth in Brazil," OECD Economics Department Working Papers 899, OECD Publishing.
  7. Umut Unal, 2011. "Rethinking the Effects of Fiscal Policy on Macroeconomic Aggregates: A Disaggregated SVAR Analysis," Working Papers 1109, Florida International University, Department of Economics.
  8. Mauricio Villafuerte & Pablo López-Murphy & Rolando Ossowski, 2011. "Riding the Roller Coaster: Fiscal Policies of Nonrenewable Resources Exporters in Latin America and the Caribbean ," Working Papers Central Bank of Chile 609, Central Bank of Chile.

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