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Fiscal Policy and the Cycle in Latin America: the Role of Financing Conditions and Fiscal Rules

Author

Listed:
  • Enrique Alberola
  • Iván Kataryniuk
  • Ángel Melguizo
  • René Orozco
Abstract
A stronger macroeconomic position when the financial crisis erupted allowed Latin American economies to mitigate its impact through fiscal expansions, temporarily reversing the characteristic procyclical behaviour of fiscal policy. At the same time, in the last two decades fiscal rules have been extensively adopted in the region. This paper analyses the stabilising role of discretionary fiscal policy over time, and the influence of fiscal financing conditions and of fiscal rules in said behaviour for a sample of eight Latin American economies. The analysis shows three main results: i) fiscal policies became countercyclical during the crisis, but they have turned procyclical again in recent years; ii) financing conditions are the key driver of fiscal procyclicality, while iii) fiscal rules tend to neutralise it. ****** La crisis financiera fue enfrentada por América Latina con una posición macroeconómica más sólida, lo que permitió mitigar su impacto con una expansión fiscal, en contraste con la tradicional prociclicidad de las políticas fiscales. Asimismo, en las últimas dos décadas ha proliferado el establecimiento de reglas fiscales en la región. Este artículo analiza el papel estabilizador de la política fiscal discrecional, y la influencia de las condiciones financieras y las reglas fiscales en tal comportamiento para ocho países de América Latina. El análisis obtiene tres principales resultados: i) la política fiscal fue contracíclica durante la crisis, y volvió a ser procíclica posteriormente; ii) las condiciones financieras determinan la prociclicidad de la política fiscal, mientras que iii) las reglas fiscales tienden a neutralizarla.

Suggested Citation

  • Enrique Alberola & Iván Kataryniuk & Ángel Melguizo & René Orozco, 2018. "Fiscal Policy and the Cycle in Latin America: the Role of Financing Conditions and Fiscal Rules," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 36(85), pages 101-116, November.
    • Handle: RePEc:col:000107:017005
    DOI: 10.32468/espe.8506
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    References listed on IDEAS

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    More about this item

    Keywords

    procyclical fiscal policy; fiscal rules; financing conditions; Latin America; política fiscal procíclica; reglas fiscales; condiciones financieras; América Latina;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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