Cyclical Indicators of Fiscal Policy in Latin American Countries (with Special Reference to Chile)

Martner critically assesses the fiscal rules which have been established in most Latin American countries in recent years, pointing out that, except in the case of Chile, no mechanisms exist to ensure counter-cyclical fiscal policies. For some selected countries the author estimates the cyclical balances, taking into account the cyclical revenue of state-owned oil firms. He finds that, even if the tax burden in Latin American countries is low by OECD standards, the high volatility of commodity prices and GDP causes large fluctuations in the cyclical component of budget balances. This suggests that the potential gains from adopting counter cyclical rules, such as that introduced in Chile in 2000, are significant. Finally, Martner describes Chile’s successful experience with a rule requiring a surplus of 1 per cent of GDP on its structural budget, including the structural income from the extraction of copper, assessed on the basis of its estimated long-term price.