Fiscal Policy in Latin America over the Cycle

Author/Editor:

Alexander D Klemm

Publication Date:

April 16, 2014

Electronic Access:

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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.

Series:

Working Paper No. 14/59

Subject:

English

Publication Date:

April 16, 2014

ISBN/ISSN:

9781475516470/1018-5941

Stock No:

WPIEA2014059

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

32

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