Fiscal Consolidations in Latin America and the Caribbean: Do Inequality, Informality and Corruption Matter?

JoaÞo Tovar Jalles, Carola Pessino and Ana Cristina Calderón

No 14020, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: Widening income disparities, higher corruption and larger informality in many emerging market and developing economies (EMDE) including Latin America, all with pressing and mounting fiscal problems, have rekindled interest in the empirical analysis of the key factors determining the occurrence of fiscal consolidations. Using discrete choice models, this paper examines the drivers of fiscal consolidation episodes in a sample of 148 EMDE between 1980 and 2019 with a focus on Latin America. Consolidations are more likely during good economic times. Inequality does not seem to drive consolidations in Latin America, while more informality increases the probability of their occurrence, corruption decreases it. In turn, when examining the drivers of successful consolidations, larger income inequality seems to act as a boost for successful consolidations, while informality hinders the likelihood of success. In fact, while the size of the public investment multiplier in Latin America is larger than in other country groups, when informality is high the multiplier effect gets reduced to a much lower and insignificant magnitude. Results are robust to several sensitivity and robustness tests.

Keywords: fiscal adjustments; filtering; Panel Data; binary choice models; local projection; fiscal multipliers; nonlinearities; corruption; shadow economy (search for similar items in EconPapers)
JEL-codes: C23 E21 E62 H50 H62 (search for similar items in EconPapers)
Date: 2025-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://publications.iadb.org/publications/english ... orruption-Matter.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:14020

DOI: 10.18235/0013447

Access Statistics for this paper

More papers in IDB Publications (Working Papers) from Inter-American Development Bank Contact information at EDIRC.
Bibliographic data for series maintained by Felipe Herrera Library ().