Budget Rigidity in Latin America and the Caribbean : Causes, Consequences, and Policy Implications

Policy makers in Latin America and the Caribbean (LAC) often complain that poor fiscal performance in their countries is a result of a high degree of spending rigidity. Despite being a common complaint, the issue has remained largely ignored by the literature because of the lack of adequate measures...

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Bibliographic Details
Main Authors:	Herrera, Santiago, Olaberria, Eduardo
Format:	Book
Language:	English
Published:	World Bank, Washington, DC 2020
Subjects:	FISCAL POLICY POLITICAL ECONOMY BUDGETARY PROCESS EXTERNAL CONSTRAINTS PUBLIC EMPLOYMENT WAGE BILL SUBNATIONAL EXPENDITURE PUBLIC DEBT DEBT SUSTAINABILITY
Online Access:	https://documents.worldbank.org/en/publication/documents-reports/documentdetail/181171586472396016/budget-rigidity-in-latin-america-and-the-caribbean-causes-consequences-and-policy-implications http://hdl.handle.net/10986/33571

id	okr-10986-33571
recordtype	oai_dc
spelling	okr-10986-335712021-04-23T14:05:19Z Budget Rigidity in Latin America and the Caribbean : Causes, Consequences, and Policy Implications Herrera, Santiago Olaberria, Eduardo FISCAL POLICY POLITICAL ECONOMY BUDGETARY PROCESS EXTERNAL CONSTRAINTS PUBLIC EMPLOYMENT WAGE BILL SUBNATIONAL EXPENDITURE PUBLIC DEBT DEBT SUSTAINABILITY Policy makers in Latin America and the Caribbean (LAC) often complain that poor fiscal performance in their countries is a result of a high degree of spending rigidity. Despite being a common complaint, the issue has remained largely ignored by the literature because of the lack of adequate measures of rigidity that allow cross-country and time series comparability. This report helps close this gap by introducing a new measure of spending rigidities that can be easily applied to multiple countries. It focuses on the categories of spending that are naturally inflexible—wages, pensions, transfers to subnational governments, and debt service—and separates them into two components: structural and nonstructural. The structural component is determined by economic, demographic, and institutional fundamentals. The nonstructural component is determined by short-run transitory factors associated with business and political cycles. The degree of rigidity of spending is then proxied by the ratio of structural spending to total spending, with a higher value indicating that spending is driven mostly by factors out of the policy makers’ control. This concept of rigidity was applied to 120 countries for the years 2000–17. The report concludes by discussing several policies to contain the sources of rigidity in the long term, ranging from the importance of deepening the pension reform process to the need of establishing strong fiscal institutions promoting medium-term fiscal planning. 2020-04-09T21:39:41Z 2020-04-09T21:39:41Z 2020-03-09 Book https://documents.worldbank.org/en/publication/documents-reports/documentdetail/181171586472396016/budget-rigidity-in-latin-america-and-the-caribbean-causes-consequences-and-policy-implications 978-1-4648-1520-1 http://hdl.handle.net/10986/33571 English International Development in Focus; CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Publication Latin America & Caribbean Caribbean Latin America
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	FISCAL POLICY POLITICAL ECONOMY BUDGETARY PROCESS EXTERNAL CONSTRAINTS PUBLIC EMPLOYMENT WAGE BILL SUBNATIONAL EXPENDITURE PUBLIC DEBT DEBT SUSTAINABILITY
spellingShingle	FISCAL POLICY POLITICAL ECONOMY BUDGETARY PROCESS EXTERNAL CONSTRAINTS PUBLIC EMPLOYMENT WAGE BILL SUBNATIONAL EXPENDITURE PUBLIC DEBT DEBT SUSTAINABILITY Herrera, Santiago Olaberria, Eduardo Budget Rigidity in Latin America and the Caribbean : Causes, Consequences, and Policy Implications
geographic_facet	Latin America & Caribbean Caribbean Latin America
relation	International Development in Focus;
description	Policy makers in Latin America and the Caribbean (LAC) often complain that poor fiscal performance in their countries is a result of a high degree of spending rigidity. Despite being a common complaint, the issue has remained largely ignored by the literature because of the lack of adequate measures of rigidity that allow cross-country and time series comparability. This report helps close this gap by introducing a new measure of spending rigidities that can be easily applied to multiple countries. It focuses on the categories of spending that are naturally inflexible—wages, pensions, transfers to subnational governments, and debt service—and separates them into two components: structural and nonstructural. The structural component is determined by economic, demographic, and institutional fundamentals. The nonstructural component is determined by short-run transitory factors associated with business and political cycles. The degree of rigidity of spending is then proxied by the ratio of structural spending to total spending, with a higher value indicating that spending is driven mostly by factors out of the policy makers’ control. This concept of rigidity was applied to 120 countries for the years 2000–17. The report concludes by discussing several policies to contain the sources of rigidity in the long term, ranging from the importance of deepening the pension reform process to the need of establishing strong fiscal institutions promoting medium-term fiscal planning.
format	Book
author	Herrera, Santiago Olaberria, Eduardo
author_facet	Herrera, Santiago Olaberria, Eduardo
author_sort	Herrera, Santiago
title	Budget Rigidity in Latin America and the Caribbean : Causes, Consequences, and Policy Implications
title_short	Budget Rigidity in Latin America and the Caribbean : Causes, Consequences, and Policy Implications
title_full	Budget Rigidity in Latin America and the Caribbean : Causes, Consequences, and Policy Implications
title_fullStr	Budget Rigidity in Latin America and the Caribbean : Causes, Consequences, and Policy Implications
title_full_unstemmed	Budget Rigidity in Latin America and the Caribbean : Causes, Consequences, and Policy Implications
title_sort	budget rigidity in latin america and the caribbean : causes, consequences, and policy implications
publisher	World Bank, Washington, DC
publishDate	2020
url	https://documents.worldbank.org/en/publication/documents-reports/documentdetail/181171586472396016/budget-rigidity-in-latin-america-and-the-caribbean-causes-consequences-and-policy-implications http://hdl.handle.net/10986/33571
_version_	1764478574325137408

Budget Rigidity in Latin America and the Caribbean : Causes, Consequences, and Policy Implications

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