Structural Fiscal Balances in Latin America and the Caribbean: New Dataset and Estimations

Martin Ardanaz (), Ana Corbacho, Alberto Gonzales and Nuria Tolsa Caballero

No 6989, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: Over the past decade, an increasing number of countries have began anchoring their fiscal policy frameworks in terms of rules that target the cyclically adjusted or structural (as opposed to actual) balance in an effort to overcome problems of procyclicality and fiscal volatility. The logic for doing so is in principle compelling: rule-based fiscal policies allow automatic stabilizers to work freely during the cycle and help accumulate fiscal surplus in good times. However, the estimation of structural balances is subject to a number of methodological challenges, including the degree of estimation uncertainty. This paper presents a range of estimates of the structural budget balance and uses them to analyze the cyclical behavior of fiscal policy in Latin America and the Caribbean. Based on an original dataset comprising detailed fiscal information from 20 countries across the region between 1990 and 2012, the paper finds that the range of estimates can be large for some countries, especially those that derive substantial fiscal revenue from commodity-related activities. In addition, the evidence shows that on average, the region has followed a procyclical policy pattern: a 1 percent increase in the output gap is associated with up to a 0.66 percentage point deterioration in the structural primary balance. This pattern hides substantial regional heterogeneity: procyclicality is more marked in countries that face large terms of trade shocks, but it can be counteracted by higher institutional quality.

Keywords: institutions; commodity prices; cyclicality; business cycle; structural fiscal balances (search for similar items in EconPapers)
JEL-codes: E02 E32 E62 (search for similar items in EconPapers)
Date: 2015-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://publications.iadb.org/publications/english ... -and-Estimations.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:6989

DOI: 10.18235/0000028

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 ().