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Rethinking Fiscal Rules in the Region

Author

Listed:
  • Samuel Alarcón

    (ILADES (Chile))

  • Pablo Cachaga

    (Banco Central de Bolivia)

  • Martin Vallejos

    (University Higher School of Economics (Rusia))

Abstract

In recent years, Latin America has experienced significant fluctuations in its terms of trade. In this context, the countries subject to fiscal rules failed to fully mitigate the impact of adverse external shocks on their economies through the use of fiscal policy. In this sense, using a SVAR, we find that, in face of negative shocks in the terms of trade, the fiscal rules applied by the South American countries do not necessarily guarantee effectiveness of the fiscal policy to stabilize the business cycle fluctuations. Moreover, an expansive fiscal policy for some countries in the region could help reduce volatility of the cycle.

Suggested Citation

  • Samuel Alarcón & Pablo Cachaga & Martin Vallejos, 2018. "Rethinking Fiscal Rules in the Region," Cuadernos de Investigación Económica Boliviana, Ministerio de Economía y Finanzas Públicas de Bolivia, vol. 2(2), pages 1-27, December.
    • Handle: RePEc:efp:journl:v:2:y:2018:i:2:p:1-27
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    More about this item

    Keywords

    Fiscal Policy; Terms of Trade; Business Cycle; Fiscal Rules;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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