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Fiscal Policy and the Cycle in Latin America: the Role of Financing Conditions and Fiscal Rules

Author

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  • Enrique Alberola
  • Iván Kataryniuk
  • Ángel Melguizo

    ()

  • René Orozco

Abstract

A stronger macroeconomic position when the financial crisis erupted allowed Latin American economies to mitigate its impact through fiscal expansions, temporarily reversing the characteristic procyclical behaviour of fiscal policy. At the same time, in the last two decades fiscal rules have been extensively adopted in the region. This paper analyses the stabilising role of discretionary fiscal policy over time, and the influence of fiscal financing conditions and of fiscal rules in said behaviour for a sample of eight Latin American economies. The analysis shows three main results: i) fiscal policies became countercyclical during the crisis, but they have turned procyclical again in recent years; ii) financing conditions are the key driver of fiscal procyclicality, while iii) fiscal rules tend to neutralise it. ****** La crisis financiera fue enfrentada por América Latina con una posición macroeconómica más sólida, lo que permitió mitigar su impacto con una expansión fiscal, en contraste con la tradicional prociclicidad de las políticas fiscales. Asimismo, en las últimas dos décadas ha proliferado el establecimiento de reglas fiscales en la región. Este artículo analiza el papel estabilizador de la política fiscal discrecional, y la influencia de las condiciones financieras y las reglas fiscales en tal comportamiento para ocho países de América Latina. El análisis obtiene tres principales resultados: i) la política fiscal fue contracíclica durante la crisis, y volvió a ser procíclica posteriormente; ii) las condiciones financieras determinan la prociclicidad de la política fiscal, mientras que iii) las reglas fiscales tienden a neutralizarla.

Suggested Citation

  • Enrique Alberola & Iván Kataryniuk & Ángel Melguizo & René Orozco, 2018. "Fiscal Policy and the Cycle in Latin America: the Role of Financing Conditions and Fiscal Rules," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 36(85), pages 101-116, April.
  • Handle: RePEc:bdr:ensayo:v:36:y:2018:i:85:p:101-116
    DOI: 10.32468/espe.8506
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    References listed on IDEAS

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    Cited by:

    1. Ignacio Lozano-Espitia & Fernando Arias-Rodríguez & Jesus Bejarano & Andres Gonzalez & Clark Granger-Castaño & Franz Hamann & Yurany Hernández-Turca & Juan Manuel Julio-Román & Martha López & Juan C. , 2019. "La política fiscal y la estabilización macroeconómica en Colombia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, issue 90, pages 1-60, April.
    2. Guido Zacka & Daniel Sotelsekb, 2018. "Propuesta y diseño de una regla fiscal genérica," Contaduría y Administración, Accounting and Management, vol. 63(2), pages 7-8, Junio.
    3. Sangita Misra & Rajiv Ranjan, 2018. "Fiscal rules and procyclicality: an empirical analysis," Indian Economic Review, Springer, vol. 53(1), pages 207-228, December.
    4. Enrique Alberola-Ila & Rocío Gondo & Marco Jacopo Lombardi & Diego Urbina, 2016. "Output gaps and policy stabilisation in Latin America: the effect of commodity and capital flow cycles," BIS Working Papers 568, Bank for International Settlements.
    5. Klaus Schmidt-Hebbel, 2019. "Macroeconomic Institutions: Lessons from World Experience for MENA Countries," Working Papers 1311, Economic Research Forum, revised 21 Aug 2019.
    6. Gonzáles Zuazo, Rodrigo & Molina Fernández, José Miguel, 2017. "On Graduation from Fiscal Procyclicality: The case of Bolivia," Revista Latinoamericana de Desarrollo Economico, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana, issue 27, pages 39-56, May.
    7. repec:bdr:ensayo:v:35:y:2017:i:82:p:71-85 is not listed on IDEAS
    8. Enrique Alberola & Rocio Gondo & Marco Lombardi & Diego Urbina, 2017. "Output gaps and stabilisation policies in Latin America: The effect of commodity and capital flow cycles," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República - ESPE, vol. 35(82), pages 40-52, April.
    9. Jean-Marc Fournier & Manuel Bétin, 2018. "Sovereign defaults: Evidence on the importance of government effectiveness," OECD Economics Department Working Papers 1494, OECD Publishing.
    10. Enrique Alberola-Ila & Ricardo Sousa, 2017. "Assessing fiscal policy through the lens of the financial and the commodity price cycles," BIS Working Papers 638, Bank for International Settlements.
    11. Martin Ardanaz & Ana Corbacho & Alberto Gonzales & Nuria Tolsa, 2016. "Evaluating Fiscal Performance in Latin America and the Caribbean: Structural Balance Estimates from an Original Dataset," Hacienda Pública Española / Review of Public Economics, IEF, vol. 219(4), pages 67-92, December.
    12. Guido Zacka & Daniel Sotelsekb, 2018. "A generic fiscal rule: Proposal and design," Contaduría y Administración, Accounting and Management, vol. 63(2), pages 9-10, Junio.

    More about this item

    Keywords

    procyclical fiscal policy; fiscal rules; financing conditions; Latin America; política fiscal procíclica; reglas fiscales; condiciones financieras; América Latina;

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • G1 - Financial Economics - - General Financial Markets

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