Fiscal rules and the behavior of public investment: towards growth-friendly fiscal policy? The case of Argentina

Daniel Artana, Cynthia Moskovits (), Jorge Puig () and Ivana Templado ()
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Cynthia Moskovits: Fundación de Investigaciones Económicas Latinoamericanas (FIEL)
Ivana Templado: Fundación de Investigaciones Económicas Latinoamericanas (FIEL)

SN Business & Economics, 2022, vol. 2, issue 8, 1-23

Abstract: Abstract Public investment cuts are the norm during economic downturns and fiscal consolidations. Consequently, public investment levels have been declining across both advanced and emerging economies over the last decades. Since this can be problematic for economic growth, countries have been adding flexibility to their Fiscal Rules (FRs)—through, for example, cyclically adjusted fiscal targets, well-defined escape clauses, and/or investment-friendly provisions—to protect public investment. This paper analyzes if flexible FRs are effective to protect public investment during fiscal consolidation episodes. The Argentine case provides a good experiment as in 2004 a flexible FR was established, while the aim of protecting public investment was explicitly included. Econometric analysis suggests that a flexible FR helps to mitigate the negative effects of fiscal consolidations on public investment. This result is in line with recent evidence and holds up to several robustness tests. Based on this finding, guidelines for a proposal of a flexible FR in Argentina are provided. The analysis supplies a reference for fiscal policy discussion in other developing countries.

Keywords: Fiscal rules; Public investment; Argentina (search for similar items in EconPapers)
JEL-codes: E32 E60 H12 H50 H54 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s43546-022-00281-8

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