Structural change in Chile: From fiscal deficits to surpluses

Fundacion ChileThis chapter discusses the driving forces behind Chile’s strong fiscalperformance. It is argued that fiscal rectitude owes much to theprogressive concentration of policymaking powers on the executivebranch of government, including over sub-national finances. Theban on revenue earmarking is highlighted as a means of renderingfiscal management more flexible. Structural reform since the returnto democracy in 1990 was facilitated by a high degree of politicalcohesiveness. The use of fiscal policy as a demand managementinstrument is due to the introduction of mechanisms to deal with theimpact on the budget of fluctuations in copper prices and thebusiness cycle, an achievement that is underpinned by Chile’s lowlevel of public indebtedness.