Inflation as a Fiscal Phenomenon: Evidence from Latin America

Robert Barro, Francesco Bianchi, Carlos Giraldo () and Iader Giraldo
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Robert Barro: Harvard University
Francesco Bianchi: Johns Hopkins University; CEPR; and NBER

Documentos de trabajo from FLAR

Abstract: This paper investigates the relationship between fiscal policy and inflation in a group of Latin American countries during the period 2002 to 2023. Building on the fiscal theory of the price level and recent empirical work by Barro and Bianchi (2025), we examine how fiscal expansions affected inflation dynamics in the region, with a particular focus on fiscal expansions during the pandemic era. Using both OLS and dynamic panel models, we find robust evidence that increases in primary government expenditure significantly contributed to higher headline and core inflation. Our analysis incorporates a composite spending variable that adjusts for the size and maturity of public debt, revealing that inflationary effects are more pronounced in countries with shorter debt maturities and weaker fiscal credibility. Unlike in OECD countries, the inflationary impact of fiscal policy in Latin America persists even outside the COVID-19 period, suggesting structural vulnerabilities. These findings underscore the importance of credible fiscal frameworks and coordinated macroeconomic policies to maintain price stability in emerging markets.

Keywords: Fiscal inflation; fiscal spending; COVID pandemic; Latin America. (search for similar items in EconPapers)
JEL-codes: D91 E32 E71 (search for similar items in EconPapers)
Pages: 29
Date: 2025-11-26
New Economics Papers: this item is included in nep-lam and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:col:000566:021801

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