Fiscal Policy in Latin America over the Cycle

April 16, 2014

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Format: Chicago

Alexander D Klemm. Fiscal Policy in Latin America over the Cycle, (USA: International Monetary Fund, 2014) accessed December 3, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper provides an analysis of the cyclical stance of fiscal policy in Latin America. Its contributions include developing a new measure of the cyclicality of fiscal policy, careful analysis of the statistical significance of results, and accounting for the effect of commodity prices on fiscal balances. The new cyclicality measure takes into account both discretionary policy action and automatic stabilizers, but excludes additional revenues that are due to applying an unchanged average tax rate to nominal GDP in excess of potential. The paper finds that fiscal policy has been procyclical on average in Latin America, but counter or acyclical in advanced economies. Country-specific results are mostly insignificant, except in a few cases where policy is clearly procyclical. For some countries (Brazil, Chile, Colombia, El Salvador, and Mexico), there is evidence of a recent move toward more countercyclical policies.

Subject: Automatic stabilizers, Commodity prices, Fiscal policy, Fiscal stance, Output gap, Prices, Production

Keywords: Automatic stabilizers, Automatic stabilizers work, Business cycle, Commodity export, Commodity export price, Commodity price, Commodity price data, Commodity prices, Commodity revenue, Countercyclical fiscal policy, Data from the UN Comtrade database, Fiscal policy, Fiscal stance, Gross commodity export, Latin America, Output gap, Price data, Price data from the UN Comtrade database, Price index, Revenue reform, Significance of the commodity price index, Spending, Sub-Saharan Africa, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/059
Stock No:

WPIEA2014059
ISBN:

9781475516470
ISSN:

1018-5941

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