Interpreting Budget Deficits in Latin America: Methods with Application to Argentina

Daniel Arce

Cambridge Journal of Economics, 1999, vol. 23, issue 1, 21-32

Abstract: Fiscal policy in Latin American countries is too often evaluated on the basis of raw deficit figures. This study demonstrates how the effects of inflation on the deficit must be removed in order to derive the discretionary component of fiscal policy. Once this correction is made, fiscal policy can be evaluated by testing the movement of the deficit with respect to alternative policy targets. As an illustration, the author employs Argentine data in order to decompose the deficit and determine the degree to which it is a reflection of budget endogeneity versus populism/social conflict. Copyright 1999 by Oxford University Press.

Date: 1999
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