Cyclicality of Fiscal Transfers for a Latin American Small Open Economy: The Perils of Earmarked Transfers

Javier Torres, Alexandra Málaga and Rodrigo Chang
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Alexandra Málaga: Universidad del Pacífico
Rodrigo Chang: Universidad del Pacífico

No 155, Working Papers from Peruvian Economic Association

Abstract: We construct the largest fiscal transfers database for Peru (from 1999 to 2015) to analyze the relationship between government transfers and the economic cycle. Although most transfers of social programs behave independently of the economic cycle, two of the largest transfer programs to sub-national governments, FONCOMUN and Windfall & Royalties transfers, are clearly procyclical. They are earmarked to the national Value-Added tax revenue and to the corporate tax of extractive industries, respectively. These transfer rules could lead to scarcity of resources for sub-national governments during a drop in terms-of-trade induced recession.

Keywords: Economic Cycle; Fiscal Transfers (search for similar items in EconPapers)
JEL-codes: E32 H53 H77 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-mac and nep-pub
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