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Automatic Stabilization and Fiscal Policy: Some Quantitative Implications for Latin America and the Caribbean

Author

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  • Emilio Espino
  • Martín González Rozada

Abstract

This paper provides an estimation of the size of income and demand automatic stabilizers in a representative sample of Latin American and Caribbean (LAC) countries. The authors find that when a negative unemployment shock hits the economy, the size of income and demand automatic stabilizers coefficients is much smaller than the size of these coefficients in Europe and the United States. This evidence suggests that there is room for policies that can enlarge the absorption by these coefficients as a way to contribute to macroeconomic stability in LAC countries. The paper analyzes four policies affecting the income stabilization coefficient and two others affecting directly the demand stabilization coefficient. The main results suggest that changing the minimum tax exemption and its progressiveness using the tax structure of middle-income countries outside the LAC region is the best option to enlarge the size of the income and demand stabilization coefficients, and in this way to reduce the need of discretionary fiscal policies in the region.

Suggested Citation

  • Emilio Espino & Martín González Rozada, 2012. "Automatic Stabilization and Fiscal Policy: Some Quantitative Implications for Latin America and the Caribbean," IDB Publications (Working Papers) 4130, Inter-American Development Bank.
  • Handle: RePEc:idb:brikps:4130
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    File URL: http://publications.iadb.org/bitstream/handle/11319/4130/Automatic%20Stabilization%20and%20Fiscal%20Policy.pdf?sequence=1
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    Citations

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    Cited by:

    1. Bucheli, Marisa & Forteza, Alvaro & Rossi, Ianina, 2008. "Work history and the access to contributory pensions in Uruguay : some facts and policy options," Social Protection and Labor Policy and Technical Notes 90345, The World Bank.
    2. Marisa Bucheli & Rodrigo Ceni, 2010. "Informality Sectoral Selection and Earnings in Uruguay," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 25(2), pages 281-307.
    3. María Claudia LLANES VALENZUELA & Gabriel Armando PIRAQUIVE G., 2012. "Sistemas pensionales y solidarios de Chile, Irlanda,Polonia, Brasil y Perú," ARCHIVOS DE ECONOMÍA 009596, DEPARTAMENTO NACIONAL DE PLANEACIÓN.

    More about this item

    Keywords

    Fiscal Policy; Financial Crises & Structural Adjustement; Production & Business Cycles; Income; Consumption & Saving; Workforce & Employment; Income and demand automatic stabilizers; economic cycle; microsimulations;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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