Fiscal policy and the cycle in Latin America: The role of financing conditions and fiscal rules

Produced by: 
Organisation for Economic Cooperation and Development(OECD)
Available from: 
February 2017
Paper author(s): 
Enrique Alberola
Iván Kataryniuk
Ángel Melguizo
René Orozco
Topic: 
Fiscal Policy - Public and Welfare Economics
Year: 
2017

A stronger macroeconomic position when the financial crisis erupted allowed Latin American economies to mitigate its impact through fiscal expansions, 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 role of fiscal financing conditions and fiscal rules in this evolution in 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 confirmed to be a key driver of the fiscal stance, but their relevance has recently diminished; and iii) fiscal rules are associated with a more stabilising role for fiscal policy.

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