Can Fiscal Rules Help Reduce Macroeconomic Volatility in the Latin America and Caribbean Region?

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collection.link.5
https://openknowledge.worldbank.org/handle/10986/9
collection.name.5
Policy Research Working Papers
dc.contributor.author
Perry, Guillermo
dc.date.accessioned
2014-05-05T20:13:58Z
dc.date.available
2014-05-05T20:13:58Z
dc.date.issued
2003-06
dc.description.abstract
The debate on fiscal policy in Europe centers on how to let automatic stabilizers work while achieving fiscal consolidation. There is significant agreement on the importance of using fiscal policy as a counter-cyclical instrument, as monetary policy can no longer play this role. In contrast, most of the discussion on fiscal policy in Latin America and the Carribean region (LAC) deals just on solvency issues, largely ignoring the effects of the economic cycle. This is surprising as LAC economies are much more volatile than their European counterparts and have been generally applying pro-cyclical fiscal policies that exacerbate volatility. Some analysts and policymakers appear to think that counter-cyclical fiscal policies are a luxury that only industrial countries can indulge in or, at least, that LAC countries (with the exception of Chile) that have successfully put in place a counter-cyclical fiscal policy need to deal first with pressing adjustment and solvency issues before they attempt to reduce the highly pro-cyclical character of their fiscal policies. The author argues that this is a major mistake because the costs of pro-cyclical fiscal policies in LAC are huge in growth and welfare terms, especially for the poor, and because pro-cyclical policies and rules tend to develop a deficit bias, thus ending up being nonsustainable and noncredible. Perry illustrates both propositions. He then examines the causes of the pro-cyclicality of fiscal policies in LAC and discusses how well-designed fiscal rules may help to deal with the political economy and credibility factors behind pro-cyclicality. He also examines conflicts between flexibility and credibility in rules, showing how a good design can both facilitate the operation of automatic stabilizers while at the same time supporting solvency goals and enhancing credibility. Perry evaluates the experience with different fiscal rules and institutions in LAC to see the extent they have helped or can help to achieve the twin goals of avoiding deficit and pro-cyclical biases.
en
dc.identifier.uri
http://hdl.handle.net/10986/18172
dc.language
English
dc.language.iso
en_US
dc.publisher
World Bank, Washington, DC
dc.relation.ispartofseries
Policy Research Working Paper;No. 3080
dc.rights
CC BY 3.0 IGO
dc.rights.uri
http://creativecommons.org/licenses/by/3.0/igo/
dc.subject
ACCOUNTING
dc.subject
ASYMMETRIC INFORMATION
dc.subject
BENCHMARK
dc.subject
BUDGET DEFICITS
dc.subject
BUDGETARY INSTITUTIONS
dc.subject
BUDGETARY PROCESS
dc.subject
CAPACITY BUILDING
dc.subject
CAPITAL FLOWS
dc.subject
CAPITAL GOODS
dc.subject
CENTRAL BANK
dc.subject
CENTRAL GOVERNMENT
dc.subject
COALITIONS
dc.subject
CONSERVATISM
dc.subject
CONSOLIDATION
dc.subject
CONSTITUTIONAL LAW
dc.subject
CONSTITUTIONAL REFORM
dc.subject
DEBT
dc.subject
DEFAULT RISK
dc.subject
DEPOSITS
dc.subject
DEVELOPED COUNTRIES
dc.subject
DEVELOPMENT ECONOMICS
dc.subject
ECONOMIC ACTIVITY
dc.subject
ECONOMIC INSTABILITY
dc.subject
ECONOMIC PERFORMANCE
dc.subject
ELASTICITIES
dc.subject
ELASTICITY
dc.subject
EMPIRICAL EVIDENCE
dc.subject
ENACTMENT
dc.subject
EQUILIBRIUM
dc.subject
EXPANSIONARY FISCAL
dc.subject
EXPANSIONARY POLICIES
dc.subject
EXPANSIONARY POLICY
dc.subject
EXPENDITURE
dc.subject
EXPENDITURES
dc.subject
EXPORTS
dc.subject
FINANCIAL DEEPENING
dc.subject
FINANCIAL INSTITUTIONS
dc.subject
FINANCIAL INTEGRATION
dc.subject
FINANCIAL MARKETS
dc.subject
FINANCIER
dc.subject
FISCAL
dc.subject
FISCAL BALANCE
dc.subject
FISCAL COSTS
dc.subject
FISCAL CRISES
dc.subject
FISCAL CRISIS
dc.subject
FISCAL POLICIES
dc.subject
FISCAL POLICY
dc.subject
FISCAL REVENUES
dc.subject
FISCAL RULES
dc.subject
FISCAL STANCE
dc.subject
FISCAL STRESS
dc.subject
FISCAL TRANSPARENCY
dc.subject
GDP
dc.subject
GOVERNMENT EXPENDITURES
dc.subject
GOVERNMENT POLICY
dc.subject
GROWTH RATE
dc.subject
HUMAN CAPITAL
dc.subject
INCOME
dc.subject
INCOME DISTRIBUTION
dc.subject
INFLATION
dc.subject
INTEREST RATES
dc.subject
INTERGOVERNMENTAL TRANSFERS
dc.subject
INTERNATIONAL FINANCIAL MARKETS
dc.subject
LABOR MARKETS
dc.subject
LAWS
dc.subject
LDCS
dc.subject
LEGISLATION
dc.subject
LOCAL AUTHORITIES
dc.subject
LOW INTEREST RATES
dc.subject
MACROECONOMIC PERFORMANCE
dc.subject
MACROECONOMIC STABILIZATION
dc.subject
MDB
dc.subject
MONETARY POLICIES
dc.subject
MONETARY POLICY
dc.subject
OIL
dc.subject
OIL PRICES
dc.subject
OPPOSITION PARTIES
dc.subject
ORGANIZATIONAL CAPITAL
dc.subject
PENALTIES
dc.subject
PERVERSE INCENTIVES
dc.subject
POLITICAL CONSENSUS
dc.subject
POLITICAL ECONOMY
dc.subject
POLITICIANS
dc.subject
POTENTIAL OUTPUT
dc.subject
PUBLIC EXPENDITURES
dc.subject
PUBLIC FINANCES
dc.subject
PUBLIC INVESTMENTS
dc.subject
PUBLIC SPENDING
dc.subject
REAL EXCHANGE RATE
dc.subject
REAL GDP
dc.subject
REVENUE AVAILABILITY
dc.subject
ROYALTY
dc.subject
SAFETY NETS
dc.subject
SAVINGS
dc.subject
SOCIAL TRANSFERS
dc.subject
SUBNATIONAL GOVERNMENTS
dc.subject
TERMS OF TRADE
dc.subject
TOTAL REVENUE
dc.subject
UNDERLYING PROBLEMS
dc.subject
VETO MACROECONOMIC SHOCKS
dc.subject
FISCAL ADMINISTRATION
dc.subject
FISCAL POLICY
dc.subject
MACROECONOMIC STABILIZATION
dc.subject
SOLVENCY
dc.subject
COUNTER-CYCLICAL INTERVENTIONS
dc.subject
POLITICAL ACCOUNTABILITY
dc.subject
MACROECONOMIC SHOCKS
dc.subject
VETO
dc.title
Can Fiscal Rules Help Reduce Macroeconomic Volatility in the Latin America and Caribbean Region?
en
okr.crosscuttingsolutionarea
Jobs
okr.doctype
Publications & Research :: Policy Research Working Paper
okr.doctype
Publications & Research
okr.docurl
http://documents.worldbank.org/curated/en/2003/06/2438506/can-fiscal-rules-help-reduce-macroeconomic-volatility-latin-america-caribbean-region
okr.globalpractice
Macroeconomics and Fiscal Management
okr.globalpractice
Social Protection and Labor
okr.globalpractice
Finance and Markets
okr.globalpractice
Governance
okr.googlescholar.linkpresent
yes
okr.identifier.doi
10.1596/1813-9450-3080
okr.identifier.externaldocumentum
000094946_03071704235094
okr.identifier.internaldocumentum
2438506
okr.identifier.report
WPS3080
okr.language.supported
en
okr.pdfurl
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2003/07/26/000094946_03071704235094/Rendered/PDF/multi0page.pdf
en
okr.region.administrative
Latin America & Caribbean
okr.region.geographical
Caribbean
okr.region.geographical
Latin America
okr.sector
Public Administration, Law, and Justice :: General public administration sector
okr.topic
Economic Theory and Research
okr.topic
Banks and Banking Reform
okr.topic
Environmental Economics and Policies
okr.topic
Social Protections and Labor :: Labor Policies
okr.topic
Payment Systems and Infrastructure
okr.topic
Macroeconomics and Economic Growth :: Economic Stabilization
okr.topic
Governance :: National Governance
okr.topic
Fiscal and Monetary Policy
okr.topic
Finance and Financial Sector Development
okr.unit
Office of the Chief Economist, Latin America and the Caribbean Region
okr.volume
1

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