Fiscal Rules and the Management of Natural Resource Revenues: The Case of Chile

Over the past quarter-century, Chile has proven that the unthinkable is possible: A middle-income, natural resource–producing nation can have a fiscal policy that is both stable and sustainable. The core of this policy has been very simple: Act responsibly, design policy for the long run, and accumulate enough fiscal space so that fiscal policy can play a stabilizing role in the short run. The approach implies saving during periods of high copper prices and using those accumulated resources during a global economic crisis. Shifting from a procyclical to a mildly countercyclical fiscal stance has helped to smooth public investment and social expenditures across the cycle. One example of this countercyclical policy was Chile’s reaction to the 2008–2009 world financial crisis. Thus, this article argues that Chile’s approach contains ideas and practices that may be useful in the design of fiscal policies and institutions in other commodity-producing nations.