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A Lesson from the South for Fiscal Policy in the US and Other Advanced Countries

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  • Jeffrey Frankel

    (Harvard University, 79 JFK Street, Cambridge, MA 02138, USA)

Abstract

American fiscal policy has been procyclical: Washington wasted the expansion period 2001–2007 by running budget deficits, but by 2011 had come to feel constrained by inherited debt to withdraw fiscal stimulus. Chile has achieved countercyclical fiscal policy – saving in booms and easing in recession – during the same decade that rich countries forgot how to do so. Chile has a rule that targets a structural budget balance. But rules are not credible by themselves. In Europe and the United States, official forecasts are overly optimistic in booms; so revenue is spent rather than saved. Chile avoids such wishful thinking by having independent panels of experts decide what is structural and what is cyclical.

Suggested Citation

  • Jeffrey Frankel, 2011. "A Lesson from the South for Fiscal Policy in the US and Other Advanced Countries," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 53(3), pages 407-430, September.
  • Handle: RePEc:pal:compes:v:53:y:2011:i:3:p:407-430
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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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