Can Fiscal Rules Help Reduce Macroeconomic Volatility in the Latin America and Caribbean Region?
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 polic...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2003/06/2438506/can-fiscal-rules-help-reduce-macroeconomic-volatility-latin-america-caribbean-region http://hdl.handle.net/10986/18172 |
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okr-10986-18172 |
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| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ACCOUNTING ASYMMETRIC INFORMATION BENCHMARK BUDGET DEFICITS BUDGETARY INSTITUTIONS BUDGETARY PROCESS CAPACITY BUILDING CAPITAL FLOWS CAPITAL GOODS CENTRAL BANK CENTRAL GOVERNMENT COALITIONS CONSERVATISM CONSOLIDATION CONSTITUTIONAL LAW CONSTITUTIONAL REFORM DEBT DEFAULT RISK DEPOSITS DEVELOPED COUNTRIES DEVELOPMENT ECONOMICS ECONOMIC ACTIVITY ECONOMIC INSTABILITY ECONOMIC PERFORMANCE ELASTICITIES ELASTICITY EMPIRICAL EVIDENCE ENACTMENT EQUILIBRIUM EXPANSIONARY FISCAL EXPANSIONARY POLICIES EXPANSIONARY POLICY EXPENDITURE EXPENDITURES EXPORTS FINANCIAL DEEPENING FINANCIAL INSTITUTIONS FINANCIAL INTEGRATION FINANCIAL MARKETS FINANCIER FISCAL FISCAL BALANCE FISCAL COSTS FISCAL CRISES FISCAL CRISIS FISCAL POLICIES FISCAL POLICY FISCAL REVENUES FISCAL RULES FISCAL STANCE FISCAL STRESS FISCAL TRANSPARENCY GDP GOVERNMENT EXPENDITURES GOVERNMENT POLICY GROWTH RATE HUMAN CAPITAL INCOME INCOME DISTRIBUTION INFLATION INTEREST RATES INTERGOVERNMENTAL TRANSFERS INTERNATIONAL FINANCIAL MARKETS LABOR MARKETS LAWS LDCS LEGISLATION LOCAL AUTHORITIES LOW INTEREST RATES MACROECONOMIC PERFORMANCE MACROECONOMIC STABILIZATION MDB MONETARY POLICIES MONETARY POLICY OIL OIL PRICES OPPOSITION PARTIES ORGANIZATIONAL CAPITAL PENALTIES PERVERSE INCENTIVES POLITICAL CONSENSUS POLITICAL ECONOMY POLITICIANS POTENTIAL OUTPUT PUBLIC EXPENDITURES PUBLIC FINANCES PUBLIC INVESTMENTS PUBLIC SPENDING REAL EXCHANGE RATE REAL GDP REVENUE AVAILABILITY ROYALTY SAFETY NETS SAVINGS SOCIAL TRANSFERS SUBNATIONAL GOVERNMENTS TERMS OF TRADE TOTAL REVENUE UNDERLYING PROBLEMS VETO MACROECONOMIC SHOCKS FISCAL ADMINISTRATION FISCAL POLICY MACROECONOMIC STABILIZATION SOLVENCY COUNTER-CYCLICAL INTERVENTIONS POLITICAL ACCOUNTABILITY MACROECONOMIC SHOCKS VETO |
| spellingShingle |
ACCOUNTING ASYMMETRIC INFORMATION BENCHMARK BUDGET DEFICITS BUDGETARY INSTITUTIONS BUDGETARY PROCESS CAPACITY BUILDING CAPITAL FLOWS CAPITAL GOODS CENTRAL BANK CENTRAL GOVERNMENT COALITIONS CONSERVATISM CONSOLIDATION CONSTITUTIONAL LAW CONSTITUTIONAL REFORM DEBT DEFAULT RISK DEPOSITS DEVELOPED COUNTRIES DEVELOPMENT ECONOMICS ECONOMIC ACTIVITY ECONOMIC INSTABILITY ECONOMIC PERFORMANCE ELASTICITIES ELASTICITY EMPIRICAL EVIDENCE ENACTMENT EQUILIBRIUM EXPANSIONARY FISCAL EXPANSIONARY POLICIES EXPANSIONARY POLICY EXPENDITURE EXPENDITURES EXPORTS FINANCIAL DEEPENING FINANCIAL INSTITUTIONS FINANCIAL INTEGRATION FINANCIAL MARKETS FINANCIER FISCAL FISCAL BALANCE FISCAL COSTS FISCAL CRISES FISCAL CRISIS FISCAL POLICIES FISCAL POLICY FISCAL REVENUES FISCAL RULES FISCAL STANCE FISCAL STRESS FISCAL TRANSPARENCY GDP GOVERNMENT EXPENDITURES GOVERNMENT POLICY GROWTH RATE HUMAN CAPITAL INCOME INCOME DISTRIBUTION INFLATION INTEREST RATES INTERGOVERNMENTAL TRANSFERS INTERNATIONAL FINANCIAL MARKETS LABOR MARKETS LAWS LDCS LEGISLATION LOCAL AUTHORITIES LOW INTEREST RATES MACROECONOMIC PERFORMANCE MACROECONOMIC STABILIZATION MDB MONETARY POLICIES MONETARY POLICY OIL OIL PRICES OPPOSITION PARTIES ORGANIZATIONAL CAPITAL PENALTIES PERVERSE INCENTIVES POLITICAL CONSENSUS POLITICAL ECONOMY POLITICIANS POTENTIAL OUTPUT PUBLIC EXPENDITURES PUBLIC FINANCES PUBLIC INVESTMENTS PUBLIC SPENDING REAL EXCHANGE RATE REAL GDP REVENUE AVAILABILITY ROYALTY SAFETY NETS SAVINGS SOCIAL TRANSFERS SUBNATIONAL GOVERNMENTS TERMS OF TRADE TOTAL REVENUE UNDERLYING PROBLEMS VETO MACROECONOMIC SHOCKS FISCAL ADMINISTRATION FISCAL POLICY MACROECONOMIC STABILIZATION SOLVENCY COUNTER-CYCLICAL INTERVENTIONS POLITICAL ACCOUNTABILITY MACROECONOMIC SHOCKS VETO Perry, Guillermo Can Fiscal Rules Help Reduce Macroeconomic Volatility in the Latin America and Caribbean Region? |
| geographic_facet |
Latin America & Caribbean Caribbean Latin America |
| relation |
Policy Research Working Paper;No. 3080 |
| description |
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. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Perry, Guillermo |
| author_facet |
Perry, Guillermo |
| author_sort |
Perry, Guillermo |
| title |
Can Fiscal Rules Help Reduce Macroeconomic Volatility in the Latin America and Caribbean Region? |
| title_short |
Can Fiscal Rules Help Reduce Macroeconomic Volatility in the Latin America and Caribbean Region? |
| title_full |
Can Fiscal Rules Help Reduce Macroeconomic Volatility in the Latin America and Caribbean Region? |
| title_fullStr |
Can Fiscal Rules Help Reduce Macroeconomic Volatility in the Latin America and Caribbean Region? |
| title_full_unstemmed |
Can Fiscal Rules Help Reduce Macroeconomic Volatility in the Latin America and Caribbean Region? |
| title_sort |
can fiscal rules help reduce macroeconomic volatility in the latin america and caribbean region? |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2003/06/2438506/can-fiscal-rules-help-reduce-macroeconomic-volatility-latin-america-caribbean-region http://hdl.handle.net/10986/18172 |
| _version_ |
1764439049546760192 |
| spelling |
okr-10986-181722021-04-23T14:03:41Z Can Fiscal Rules Help Reduce Macroeconomic Volatility in the Latin America and Caribbean Region? Perry, Guillermo ACCOUNTING ASYMMETRIC INFORMATION BENCHMARK BUDGET DEFICITS BUDGETARY INSTITUTIONS BUDGETARY PROCESS CAPACITY BUILDING CAPITAL FLOWS CAPITAL GOODS CENTRAL BANK CENTRAL GOVERNMENT COALITIONS CONSERVATISM CONSOLIDATION CONSTITUTIONAL LAW CONSTITUTIONAL REFORM DEBT DEFAULT RISK DEPOSITS DEVELOPED COUNTRIES DEVELOPMENT ECONOMICS ECONOMIC ACTIVITY ECONOMIC INSTABILITY ECONOMIC PERFORMANCE ELASTICITIES ELASTICITY EMPIRICAL EVIDENCE ENACTMENT EQUILIBRIUM EXPANSIONARY FISCAL EXPANSIONARY POLICIES EXPANSIONARY POLICY EXPENDITURE EXPENDITURES EXPORTS FINANCIAL DEEPENING FINANCIAL INSTITUTIONS FINANCIAL INTEGRATION FINANCIAL MARKETS FINANCIER FISCAL FISCAL BALANCE FISCAL COSTS FISCAL CRISES FISCAL CRISIS FISCAL POLICIES FISCAL POLICY FISCAL REVENUES FISCAL RULES FISCAL STANCE FISCAL STRESS FISCAL TRANSPARENCY GDP GOVERNMENT EXPENDITURES GOVERNMENT POLICY GROWTH RATE HUMAN CAPITAL INCOME INCOME DISTRIBUTION INFLATION INTEREST RATES INTERGOVERNMENTAL TRANSFERS INTERNATIONAL FINANCIAL MARKETS LABOR MARKETS LAWS LDCS LEGISLATION LOCAL AUTHORITIES LOW INTEREST RATES MACROECONOMIC PERFORMANCE MACROECONOMIC STABILIZATION MDB MONETARY POLICIES MONETARY POLICY OIL OIL PRICES OPPOSITION PARTIES ORGANIZATIONAL CAPITAL PENALTIES PERVERSE INCENTIVES POLITICAL CONSENSUS POLITICAL ECONOMY POLITICIANS POTENTIAL OUTPUT PUBLIC EXPENDITURES PUBLIC FINANCES PUBLIC INVESTMENTS PUBLIC SPENDING REAL EXCHANGE RATE REAL GDP REVENUE AVAILABILITY ROYALTY SAFETY NETS SAVINGS SOCIAL TRANSFERS SUBNATIONAL GOVERNMENTS TERMS OF TRADE TOTAL REVENUE UNDERLYING PROBLEMS VETO MACROECONOMIC SHOCKS FISCAL ADMINISTRATION FISCAL POLICY MACROECONOMIC STABILIZATION SOLVENCY COUNTER-CYCLICAL INTERVENTIONS POLITICAL ACCOUNTABILITY MACROECONOMIC SHOCKS VETO 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. 2014-05-05T20:13:58Z 2014-05-05T20:13:58Z 2003-06 http://documents.worldbank.org/curated/en/2003/06/2438506/can-fiscal-rules-help-reduce-macroeconomic-volatility-latin-america-caribbean-region http://hdl.handle.net/10986/18172 English en_US Policy Research Working Paper;No. 3080 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Latin America & Caribbean Caribbean Latin America |