Macroeconomic stability and fiscal policy

Fiscal rules in Argentina: the case of the fiscal responsibility law and the financial assistance programs. -- April 2010

Melamud A.

The fiscal rules promoted by Argentina until the end of the convertibility regime were aimed at increasing the country's credibility in international credit markets. However, the goals set to curb public spending were rigid and difficult to achieve, especially in a recession with successive drops of the product. The crisis of late 2001 led to a strong fiscal adjustment in the provinces, which started since 2003 to increase their revenue as the economy improved, achieving fiscal surpluses for the first time since 1983. However, the strong wage pressures from 2005 caused a strong impact on public spending, weakening fiscal results, since the provinces are primarily service providers. In a context of strong social pressures and distributional bids, the most important challenges facing the Fiscal Responsibility Law and the Financial Assistance Programs are how to contain the growth of current expenditure and public debt in the provinces.

Volatility and crisis in Latin America: Empirical evidence and policies -- May 2009

Fanelli J.M. y J.P. Jiménez

This work studies the relation between macroeconomic fluctuations and fiscal policy in Latin America, with the objective to identify structural and behavioral features that might be of relevance for the design of fiscal policies of stabilization (countercyclical and macroeconomic adjustment). Empirically, the study draws on the experience of the region during the second globalization period, which began in the late seventies. From the analytical standpoint, the main material used is the literature on countercyclical fiscal policy and macroeconomic volatility in Latin America. Although the interest goes beyond the review of specific situations, given the depth of the current international crisis, special attention is paid to the assessment of restrictions and the new demands fiscal policy will probably face as a consequence of macroeconomic unbalances associated with the crisis.

Public finances and the fiscal pact in Latin America. Documents and lectures presented in the XX International Seminar of Fiscal Policy, Santiago de Chile, 28 to 31 January 2008. -- November 2008

Martner R. (Editor)

This volume collects some of the documents and papers presented at the XX Regional Seminar on Fiscal Policy of ECLAC, United Nations. The date of the seminar coincided with the commemoration of the tenth anniversary of the publication "Fiscal Pact, strengths, weaknesses and challenges." Then it seemed useful to focus the reflection of twenty years of the regional seminar of fiscal policy to the present of public finances in the region and to the future of the Fiscal Pact in Latin America.

Price volatility of energy and food products: Macroeconomics impact and policy measures in Latin America and the Caribbean -- September 2008

Jiménez J.P., L.F. Jiménez y O. Kacef

The objective of this paper is to present those critical points faced by public policies as a result of the impact of the price raise in food and energy products, emphasizing the dilemmas presented by them and reviewing the policy answers given by the countries in the region.

Fiscal policy in times of prosperity. -- May 2007

Martner R.

There are many studies that reveal the nature of the pro-cyclical fiscal policy in Latin America. But it is very difficult to generalize, because although in some countries the policies were pro-cyclical in the 1990s, in most of them they were clearly counter-cyclical, with reductions in the weight of public debt in good times and increases during scarcity. In the current economic cycle, characterized by high commodity prices and strong GDP growth, it's often affirmed that Latin American countries continue to behave as in the past, namely with expansionary fiscal policies in times of prosperity.

Fiscal Policy and prosperity: Impact of the increase in prices of non renewable products in Latin America and Caribbean - December 2006

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Jiménez J.P. y V. Tromben

In countries specialized in non renewable products, to the challenges faced by fiscal policy is necessary to add those derived from the intrinsic characteristics of these goods. Among the countries whose exports have a participation of non renewable products of more than 20% stand Bolivia (Plurinational State of), Chile, Colombia, Ecuador, Mexico, Trinidad and Tobago, and Venezuela (Bolivarian Republic of). This paper analyzes the relation between the improvement of the terms of trade in these countries and the challenges that must be faced by their fiscal policy. The importance of the exploitation of these products is analyzed, reviewing the evolution of their prices and its effect on the terms of trade. Likewise, the performance of these countries is considered in relation with the most salient characteristics of fiscal policy in the region, and explores the evolution of public accounts in presence of the recent price raises, stressing their impact and the policy decisions adopted.

Macro-fiscal coordination in integration processes. Experiences and possible developments in Latin America -- May 200

Sánchez-Gómez M.

The coordination of macroeconomic policies in the processes of integration in Latin America has been an objective manifested repeatedly from politics and analyzed from the economic theory, but with very scarce advances observed in practice. Only since the middle of the last decade this intentions were reflected in some incipient processes of macroeconomic cooperation in the sub-regions of the Central American Common Market, the Andean Community and the MERCOSUR, which continue until today. Within these processes, macro-fiscal coordination is very important given the relevance of the fiscal situation on the macroeconomic balance and the medium-term growth in the region. Although limited in scope, the processes started constitute a reasonable cooperative advance towards macroeconomic coordination in general and macro-fiscal in particular. Furthermore, the expansive economic cycle and the improvements in the fiscal results of the last three years offer an auspicious framework to deepen the debate about the real possibilities to widen the coordination of macro-fiscal policies. The objective of this document is to contribute to this discussion from a practical perspective, taking into account not only the theoretical considerations, but also drawing the lessons from the experiences in different sub-regions.

Fiscal policy in countries specialized en non renewable products in Latin America -- April 2006

Jiménez J.P. y V. Tromben

Fiscal policy in countries specialized in non renewable products presents new challenges, different to those habitually faced by it. The unpredictability and the volatility of the prices of this type of products might complicate fiscal policy, turning difficult the determination of the appropriate sustainable level of expenditure to be undertaken by the public sector. In addition, to the extent the deposits of this type of products are exhaustible, it is necessary to incorporate considerations of equity between different generations in the design of fiscal policies. Precisely, the objective of this work is to analyze the main challenges ?in the design of their fiscal policy? faced by countries specialized in non-renewable products in the region.

This task will require a revision of the taxation instruments available in these countries, the evolution and composition of their expenditures and the resulting fiscal performance, separating, in the case they exist, the mechanisms of stabilization associated.

Structural balance of the central government of Chile: analysis and proposals -- August 2003

Tapia H.

This article presents proposals for improving the structural balance of the Government of Chile. It is argued that the tax cycle can be captured best using aggregate expenditure rather than GDP and, moreover, it is possible to describe it more precisely through a disaggregated calculation by tax. It also discusses the correction of the structural balance by recurring expenditure and the conceptual differences between the use of trend GDP and potential GDP as a production frontier, the conditions in which each of them could be used and their implications. Finally, we discuss the level of equilibrium of the structural balance as well as some operating conditions for effective, transparent and flexible implementation.

Macro-fiscal rules, sustainability and budgetary procedures. -- August 2003

CEPAL - ILPES

This volume addresses the issue of sustainability and macro-fiscal rules from different viewpoints and geographic regions; it describes recent experiences of the EU with the Stability and Growth Pact, budgetary innovations in countries of the Organization for Economic Cooperation and Development (OECD), and discusses the implications of the recent adoption of macro-rules in Brazil, Ecuador, Peru and Chile. It also discusses key methodological aspects for a good design of these instruments, with applications to the case of Spain, Colombia and member countries of the Latin American Reserve Fund (FLAR).

Fiscal policy in Argentina during the convertibility regime. -- May 2003

Centrángolo O. y J.P. Jiménez

The fiscal policy in Argentina during the nineties is generally regarded as one of the main factors behind the failure of the currency convertibility program, and subsequent crisis. This document was prepared to assess the public finances from a historical perspective, both in terms of internal consistency and its effect on macroeconomic performance over the life of the program and following crisis.

Automatic fiscal stabilizers -- April 2000

Martner R.

In this paper indicators of fiscal discretion are estimated with a simple methodology. It was identified for a number of countries in Latin America in the nineties what has been the cyclical component in the balance of public accounts, specifically the amount of revenues and expenses associated with transitory movements of the level of activity. A measure of discretionary balance is obtained by difference, a variable that represents a medium-term indicator of the state of public accounts.

The role of automatic stabilizers in fiscal policy in Latin America. -- April 1999

Martner R.

In this paper indicators of fiscal discretion are estimated with a simple methodology. It was identified for a number of countries in Latin America in the nineties what has been the cyclical component in the balance of public accounts, specifically the amount of revenues and expenses associated with transitory movements of the level of activity. A measure of discretionary balance is obtained by difference, a variable that represents a medium-term indicator of the state of public accounts.

Budgetary rules covering these mechanisms, besides ensuring inter-temporal sustainability, are intended to reduce the cyclical nature of public finances, provided that ensures transparency and symmetry in their application. It provides series that allow monitoring of structural and cyclical components of public deficits in Latin America, with a homogeneous methodology and minimum information requirements, so as to focus the discussion (and adjustments) on a medium term horizon.

Fiscal Iberoamerican Forum -- June 2009

Several authors

The focus of the publication is tax policy facing the impact of the international crisis and organizational development and organizational models of the Tax Administrations. It features an interview with Alfredo Gutierrez Ortiz Mena, head of the Tax Administration Service of Mexico. Likewise, a comparative analysis of fiscal policy measures taken by the countries of Latin America to address the global financial crisis is performed..

Tax Administration facing the Crisis: Some interventions in Latin America and Spain - March 2010

Carbajo D. y P. Porporatto

The scale of the international crisis, triggered in the last months of 2007, led countries to implement mechanisms to counteract the effects of it on their economies oriented to some extent by findings and recommendations from international cooperation agencies (ECLAC, OECD, IMF, IDB, EUROSOCIAL- Taxation, etc.), which, through studies, conferences, forums, seminars and workshops, are still trying to understand the reasons or causes of this crisis, as well as identify the best ways to counteract, or at least limit the negative implications of this global crisis, the largest after the Great Depression of the 1930s.

Among the possible reactions, emphasis will be on those corresponding to the fiscal area, in particular taxation. It is in this area that has been debated what should be the necessary changes to the TTSS, and it has even come to recognize that we are facing a unique opportunity to rethink the existing tax system and to accept ?and recommend? measures that, at other times, were considered "heterodox" by international agencies.

Fiscal Policy in Latin America: finally countercyclical and sustainable? - July 2010

Daude C., A. Melguizo y A. Neut

Latin America could face the global crisis of 2008-2009 thanks to a better macroeconomic situation. At the beginning of the crisis, most countries in the region had budget surpluses, a comparatively lower debt with respect to levels of GDP, and had achieved to implement credible monetary policies thanks to, in some cases, inflation targeting schemes. As the crisis progressed, the governments could announce significant fiscal stimulus programs while keeping country risks under control. This paper uses the OECD methodology to analyze fiscal policy in eight countries in Latin America.

Taxes and expenditure in Latin America: stability first, development now -- October 2008

Dayton-Johnson J.

Latin America has not given up on fiscal policy. Since the late 1980 crisis, governments in the region have tightened their belts frequently. Fiscal deficits have fallen from 11 percent of government revenue in 1970 and 1980, to only 8 percent since 2000. The volatility of taxes, spending and deficit has declined: an index of deficit volatility shows a decrease of one third going from 1990-1994 to 2000-2006, placing Latin America at only 6 percent above the levels of volatility of OECD countries in the last period.

The macro management of commodity booms: the response of Africa and Latin America to the demands of Asia -- August 2008

Avendaño R., H. Reisen y J. Santiso

This study explores the fiscal experience of commodity-exporting countries in Africa and Latin America, before and after the rise of Asian demand in the early 2000s. From a regulatory approach on optimal macroeconomic management in good times, the study estimates the fiscal response (national expenditure and fiscal deficit) and its relation to exports to Asia and fluctuating commodity prices. Despite not having a true countercyclical response, the results are relatively positive about the recent macroeconomic management against the booms in both regions, accompanied by a reduction in their financial vulnerability.

Managing Chile's Macroeconomy during and after the Copper Price Boom. -- Abril 2008

De Mello, L.

Compliance with the structural budget surplus rule, which has been in place since 2001, has allowed the government to maintain a counter-cyclical fiscal stance in an environment of rising copper prices, while delivering a gradual reduction in public indebtedness. Monetary policy is conducted within a framework that combines inflation targeting with exchange-rate flexibility. A Fiscal Responsibility Law was promulgated in September 2006, strengthening the macroeconomic framework further by embedding the fiscal rule in law and setting out regulations for the use of fiscal savings. Complementary pension reform is being discussed in Congress with the objective of strengthening the pension system's solidarity pillar and encouraging retirement saving. The tax system is also being improved with a view to removing obstacles to financial deepening and to business-sector development. Government spending on social programmes is budgeted to rise considerably, in line with the authorities' emphasis on social development. The main challenge in the macroeconomic area is to maintain the policy setting that has served Chile so well over the recent copper-price upswing, while tempering demands for hiking public social spending and maintaining a lean public sector in a low-tax, low-debt environment. This paper relates to the 2007 Economic Survey of Chile (www.oecd.org/eco/surveys/chile).

Consolidating Macroeconomic Adjustment in Brazil. - Diciembre 2006

De Mello L. y D. Moccero

Brazil has made considerable progress in recent years towards consolidating macroeconomic stability, which is a key framework condition for sustained growth. Monetary policy continues to respond swiftly to changes in the inflation outlook, anchoring expectations. Fiscal policy has been guided by debt sustainability considerations, delivering primary budget surpluses that have often exceeded the end-year targets. Nevertheless, while the public debt-to-GDP has been reduced, it remains high, especially in comparison with other emerging-market economies. Brazil?s overarching macroeconomic challenge is therefore to continue to reduce the public debt overhang while improving the quality of fiscal adjustment, which has so far been underpinned by revenue hikes, rather than a retrenchment of expenditure commitments. To do so, measures will need to be taken to arrest the increase in current spending, especially on pensions, paving the way for subsequently removing distortions and reducing the tax burden over the medium to longer term, once the debt-to-GDP ratio has been reduced in a sustainable manner. The favourable domestic macroeconomic environment, with falling inflation and improving growth prospects, appears propitious for reform towards the gradual phasing-out of directed credit and a reduction in compulsory reserve requirements.

Brazil's Fiscal Stance during 1995-2005 The Effect of Indebtedness on Fiscal Policy Over the Business Cycle - Mayo 2006

De Mello L. y D. Moccero

Brazil's fiscal adjustment since the floating of the real in 1999 has been impressive, even in periods of lacklustre growth. This suggests a remarkable fiscal effort to ensure public debt sustainability. To better gauge the magnitude of this adjustment effort, this paper applies the methodology used by the OECD Secretariat to distinguish changes in the fiscal stance that are due to policy action from those that are related to the automatic stabilisers built into the tax code, the social security system and unemployment insurance. The paper's main finding is that discretionary action tends to be essentially pro-cyclical in downturns, underscoring the presence of a strong "sustainability motive" in the conduct of Brazilian fiscal policy. Spending on mandatory items, such as personnel, are pro-cyclical in upturns too, which can create a "ratcheting-up" effect on government spending over time, an issue that will have to be addressed to improve the quality of on-going fiscal adjustment. An increase in the debt-to-GDP ratio by 1 percentage point is associated with a decrease in discretionary federal spending by 0.33 percentage point during 1997-2005. This responsiveness appears to have become stronger after the floating of the real in 1999. This Working Paper relates to the 2005 OECD Economic Survey of Brazil (www.oecd.org/eco/survey/brazil).

Challenges to Fiscal Adjustment in Latin America: The Cases of Argentina, Brazil, Chile and Mexico. -- Febrero 2006

OECD Economics Department

Despite considerable progress made by Latin America's biggest economies in putting their finances in order, numerous challenges remain. Public spending needs to incorporate more flexibility, ageing populations and social demands threaten future pressures on expenditure, and social and infrastructure spending need to be more cost-effective. At the same time, tax bases need to broaden to reduce reliance on distortionary taxes on financial transactions and enterprise turnover, and overall tax administration must be improved. Finally and foremost, the fiscal authorities need to keep public debt at sustainable levels, paving the way for faster, more resilient growth.