Fiscal policy management: the experience of Chile
Eric Parrado () and
Andrés Velasco ()
Papers and Proceedings from Fondo Latino Americano de Reservas - FLAR
In Latin America, commodity booms almost always have triggered booms in government spending. Unsurprisingly, those booms almost always ended in disaster-including, of course, fiscal disasters. Chile did something different. And in the what, the how and the why of that experience there may be useful lessons for other nations. This paper discusses first, in some detail, what these policies entailed and how they were applied. The paper also examines the economic results of the shift in fiscal policy. The effects on fiscal variables were large: as we documented at the outset, a sharp drop in public debt and record fiscal surpluses in years of high copper prices. This fiscal prudence also mattered for some key macro variables, among them the real exchange rate and the volatility of output growth. The basic message is simple: shifting from a pro-cyclical to a mildly countercyclical fiscal stance has helped stabilize both relative prices and economic activity.
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