拉丁美洲和加勒比地区财政规则和经济规模

  Latin

 American

 Development

 Forum

 Series

 This series

 was

 cr eat ed

 in

 2003

 t o

 pr omot e

 debat e,

 disseminat e

 information and

 anal y sis,

 and

 c on v ey

 the

 e x cit ement

 and

 comple xity

 of

 the

 most

 t opical

 issues

 in

 ec onomic

 and

 social

 dev elopment

 in

 Latin

 America

 and

 the

 Caribbean. It

 is

 sponsored

 b y

 the

 Int er- American

 Dev elopment

 Bank,

 the

 Unit ed

 Nations

 Economic

 Commission

 for

 Latin

 America

 and

 the

 Caribbean,

 and

 the

 W orld

 Bank, and

 r epr esents

 the

 highest

 quality

 in

 each

 institution’s

 r esear ch

 and

 acti vity

 output. Titles

 in

 the

 series

 ha v e

 been

 select ed

 for

 their

 r elev anc e

 t o

 the

 academic

 c ommunit y , policy

 mak ers,

 r esear cher s,

 and

 inter est ed

 r eaders,

 and

 ha v e

 been

 subject ed

 t o rig or ous

 anon ymous

 peer

 r eview

 prior

 t o

 publication.

  Ad visor y

 Committ ee

 Member s

 Alicia

 Bár c ena

 Ibarra,

 Executi v e

 Secretar y , Economic

 Commission

 for

 Latin America

 and

 the

 Caribbean,

 Unit ed

 Nations

 Inés

 Bustillo,

 Dir ect or , W ashingt on

 Offic e,

 Economic

 Commission

 for

 Latin America

 and

 the

 Caribbean,

 Unit ed

 Nations

 Eric

 P arr ado

 Herr er a,

 Chief

 Economist

 and

 Gener al

 Manag er , Resear ch Department,

 Int er- American

 Dev elopment

 Bank

 Elena

 Iancho vichina,

 Deputy

 Chief

 Economist

 of

 the

 Latin

 America

 and

 the Caribbean

 Region,

 W orld

 Bank

 Martin

 R ama,

 Chief

 Economist

 of

 the

 Latin

 America

 and

 the

 Caribbean

 Region, W orld

 Bank

 Robert o

 Rig obon,

 Pr ofessor

 of

 Applied

 Economics,

 Sloan

 School

 of

 Manag ement, Massachusetts

 Institut e

 of

 T echnology

 Ernest o

 T al vi, Dir ect or , Br ookings

 Global-CERES

 Economic

 and

 Social

 P olicy

 in Latin

 America

 Initiati v e

 Andr és

 V elasc o,

 CIEPLAN

 (Corpor ación

 de

 Estudios

 par a

 Latinoamérica),

 Chile

  T itles

 in

 the

 Latin

 American Development

 Forum

 Series

 Fiscal

 Rules

 and

 Economic

 Size

 in

 Latin

 America

 and

 the

 Caribbean

 (2020)

 by Fernando

 Blanc o,

 P ablo

 Saa v eda,

 Friederik e

 Koehler-Geib,

 and

 Emilia

 Skrok

 Who

 Decides

 Social

 P olic y?

 Social

 N et w ork s

 and

 the

 P olitical

 Econom y

 of

 Latin America

 and

 the

 Caribbean

 (2020)

 b y

 Alejandr o

 Bon v ec chi

 and

 Car los

 Scartascini

 W ag e

 Inequalit y

 in

 Latin

 America:

 Under st anding

 the

 Past

 to

 Pr epar e

 f or

 the

 Futur e

 (2018)

 b y

 Julián

 Messina

 and

 Joana

 Sil v a

 Stop

 the

 V iolence

 in

 Latin

 America:

 A

 Look

 at

 Pr e v ention

 fr om

 Cr adle

 to

 A dulthood

 (2017)

 b y

 Laur a

 Chioda

 Inno v ati v e

 Experiences

 in

 A ccess

 to

 Finance:

 Mark et -Friendl y

 Roles

 f or

 the

 Visible

 Hand?

 (2017)

 b y

 A ugust o

 de

 la

 T orr e,

 Juan

 Car los

 Gozzi,

 and

 Sergio

 L.

 Schmukler

 Be y ond

 Commodities:

 T he

 Gr o wth

 Challeng e

 of

 Latin

 America

 and

 the

 Caribbean (2016)

 b y

 Jorge

 Thompson

 Ar aujo,

 Ekaterina

 V ostroknuto v a,

 Mar k us

 Brueckner , Mat eo

 Cla vijo,

 and

 Konstantin

 M.

 W ack er

 Left

 Behind:

 Chr onic

 P o v ert y

 in

 Latin

 America

 and

 the

 Caribbean

 (2016)

 b y

 Renos Vakis,

 Jamele

 Rig olini,

 and

 Leonar do

 Luc chetti

 Cashing

 in

 on

 Education:

 W omen,

 Childcar e,

 and

 Pr osperit y

 in

 Latin

 America

 and

 the Caribbean

 (2016)

 b y

 Mercedes

 Mat eo

 Diaz

 and

 Lourdes

 Rodriguez-Chamussy

 W ork

 and

 F amil y:

 Latin

 American

 and

 Caribbean

 W omen

 in

 Sear ch

 of

 a

 N e w

 Balance

 (2016)

 b y

 Laur a

 Chioda

 Gr eat

 T eacher s:

 Ho w

 to

 Raise

 Student

 Learning

 in

 Latin

 America

 and

 the

 Caribbean

 (2014)

 b y

 Bar bar a

 Bruns

 and

 Ja vier

 Luque

 Entr epr eneur ship

 in

 Latin

 America:

 A

 Step

 Up

 the

 Social

 Ladder?

 (2013)

 b y

 Eduar do Lor a

 and

 Fr anc esca

 Cast ellani,

 edit or s

 Emerging

 Issues

 in

 Financial

 De v el opment:

 Lessons

 fr om

 Latin

 America

 (2013)

 by T atiana

 Didier

 and

 Sergio

 L.

 Schmukler , edit or s

 N e w

 Centur y,

 Old

 Disparities:

 Gaps

 in

 Ethnic

 and

 Gender

 Earning s

 in

 Latin

 America and

 the

 Caribbean

 (2012)

 b y

 Hug o

 Ñopo

 Does

 What

 Y ou

 Export

 Matter?

 In

 Sear ch

 of

 Empirical

 Guidance

 f or

 Industrial P olicies

 (2012)

 b y

 Daniel

 Lederman

 and

 W illiam

 F . Maloney

 From

 Rig ht

 to

 Realit y:

 Incenti v es,

 Labor

 Mark ets,

 and

 the

 Challeng e

 of

 A chie ving Univ er sal

 Social

 Pr otection

 in

 Latin

 America

 and

 the

 Caribbean

 (2012)

 b y

 Helena Ribe,

 Da vid

 Robalino,

 and

 Ian

 W alk er

 Br eeding

 Latin

 American

 T ig er s:

 Oper ational

 Principles

 f or

 Rehabilit ating

 Industrial P olicies

 (2011)

 b y

 Robert

 Devlin

 and

 Gr aciela

 Moguillansk y

 N e w

 P olicies

 f or

 Mandator y

 Defined

 Contribution

 P ensions:

 Industrial

 Org anization Models

 and

 In v estment

 Pr oducts

 (2010)

 b y

 Gr eg orio

 Impa vido,

 Esper anza Lasag abast er , and

 Manuel

 Gar cía-Huitr ón

 T he

 Qualit y

 of

 Lif e

 in

 Latin

 American

 Cities:

 Mark ets

 and

 P er ception

 (2010)

 b y Eduar do

 Lor a,

 Andr ew

 Po well,

 Bernar d

 M.

 S.

 v an

 Pr aag,

 and

 P ablo

 Sanguinetti, edit or s

 Discrimination

 in

 Latin

 America:

 An

 Economic

 P erspecti v e

 (2010)

 b y

 Hug o

 Ñopo, Albert o

 Chong,

 and

 Andr ea

 Mor o,

 edit or s

 T he

 Pr omise

 of

 Earl y

 Childhood

 De v el opment

 in

 Latin

 America

 and

 the

 Caribbean

 (2010)

 b y

 Emiliana

 V eg as

 and

 Lucr ecia

 Santibáñez

 J ob

 Creation

 in

 Latin

 America

 and

 the

 Caribbean:

 T r ends

 and

 P olicy

 Challeng es

 (2009)

 b y

 Carmen

 P ag és,

 Gaëlle

 Pierre,

 and

 St ef ano

 Scarpetta

 China’s

 and

 India’s

 Challeng e

 to

 Latin

 America:

 Opportunit y

 or

 T hr eat?

 (2009)

 b y Daniel

 Lederman,

 Marc elo

 Olarr eag a,

 and

 Guillermo

 E.

 Perr y , edit or s

 Does

 the

 In v estment

 Climate

 Matter?

 Micr oeconomic

 F oundations

 of

 Gr o wth

 in

 Latin America

 (2009)

 b y

 P ablo

 F ajnzy lber , Jose

 Luis

 Guasch,

 and

 J . Humbert o

 López, edit or s

 Measuring

 Inequalit y

 of

 Opportunities

 in

 Latin

 America

 and

 the

 Caribbean

 (2009) b y

 Ricar do

 P aes

 de

 Barr os,

 Fr ancisc o

 H.

 G.

 Ferr eira,

 José

 R.

 Molinas

 V eg a,

 and

 Jaime Saa v edr a

 Chandu vi

 T he

 Impact

 of

 Pri v ate

 Sector

 P articipation

 in

 Infr astructur e:

 Lig hts,

 Shadows,

 and the

 Road

 Ahead

 (2008)

 b y

 Luis

 Andr es,

 Jose

 Luis

 Remitt ances

 and

 De v el opment:

 Lessons

 fr om

 Latin

 America

 (2008)

 b y

 P ablo F ajnzy lber

 and

 J . Humbert o

 López,

 edit or s

 Fiscal

 P olic y,

 St abilization,

 and

 Gr o wth:

 Prudence

 or

 Abstinence?

 (2007)

 b y Guillermo

 Perr y , Luis

 Serv én,

 and

 Rodrig o

 Suescún,

 edit or s

 Raising

 Student

 Learning

 in

 Latin

 America:

 Challeng es

 f or

 the

 21st

 Centur y

 (2007) b y

 Emiliana

 V eg as

 and

 Jenn y

 Petro w

 In v estor

 Pr otection

 and

 Corpor ate

 Go v ernance:

 Firm-Le v el

 Evidence

 acr oss

 Latin America

 (2007)

 b y

 Albert o

 Chong

 and

 Flor encio

 López-de-Silanes,

 edit or s

 N atur al

 Resour ces:

 N either

 Cur se

 nor

 Destin y

 (2007)

 b y

 Daniel

 Lederman

 and W illiam

 F . Malone y , edit or s

 T he

 St ate

 of

 St ate

 Ref orm

 in

 Latin

 America

 (2006)

 b y

 Eduar do

 Lor a,

 edit or

 Emerging

 Capit al

 Mark ets

 and

 Gl obalization:

 T he

 Latin

 American

 Experience

 (2006)

 b y

 A ugust o

 de

 la

 T orr e

 and

 Sergio

 L.

 Schmukler

 Be y ond

 Sur vi v al:

 Pr otecting

 Households

 fr om

 Health

 Shock s

 in

 Latin

 America

 (2006) b y

 Cristian

 C.

 Baeza

 and

 T ruman

 G.

 P ackar d

 Be y ond

 Ref orms:

 Structur al

 Dynamics

 and

 Macr oeconomic

 V ulner abilit y

 (2005)

 b y José

 Ant onio

 Ocampo,

 edit or

 Pri v atization

 in

 Latin

 America:

 Myths

 and

 Realit y

 (2005)

 b y

 Albert o

 Chong

 and Flor encio

 López-de-Silanes,

 edit or s

 K eeping

 the

 Pr omise

 of

 Social

 Securit y

 in

 Latin

 America

 (2004)

 b y

 Indermit

 S.

 Gill, T ruman

 G.

 P ackar d,

 and

 Juan

 Y ermo

 Lessons

 fr om

 N AFT A

 f or

 Latin

 America

 and

 the

 Caribbean

 (2004)

 b y

 Daniel Lederman,

 W illiam

 F . Malone y , and

 Luis

 Serv én

 T he

 Limits

 of

 St abilization:

 Infr astructur e,

 Public

 Deficits,

 and

 Gr o wth

 in

 Latin America

 (2003)

 b y

 W illiam

 East er l y

 and

 Luis

 Serv én,

 edit or s

 Gl obalization

 and

 De v el opment:

 A

 Latin

 American

 and

 Caribbean

 P erspecti v e

 (2003) b y

 José

 Ant onio

 Ocampo

 and

 Juan

 Martin,

 edit or s

 Is

 Geogr aph y

 Destin y?

 Lessons

 fr om

 Latin

 America

 (2003)

 b y

 John

 Luk e

 Gallup, Alejandr o

 Ga viria,

 and

 Eduar do

 Lor a

 Guasch,

 Thomas

 Ha v en,

 and

 V i vien

 F oster

  All

 books

 in

 the

 Latin

 American

 Dev elopment

 Forum

 series

 ar e

 a v ailable for

 fr ee

 at

 https://openkno wledge.w orldbank.org/handle/10986/2167.

  TITLES

 IN

 THE

 LATIN

 AMERICAN

 DEVELOPMENT

 FOR UM

 SERIES

 ix

 Contents

 Preface

 xvii Ackno wledgments

  xix

 About

 the

 Authors

  xxi

 Abbrevia tions

  xxiii

 Over view

  1

 Setting

 the

 Scene

  1

 Fiscal

 Rules

 and

 Economic

 Size

  7

 Small

 Countries:

 Structur al

 F eatur es,

 Business

 Cy cles,

 and

 Rec ent

 Economic P erformanc e

  8

 A

 Snapshot

 of

 Fiscal

 Rules

  12

 Fiscal

 Rules

 in

 Pr actic e:

 Pr esenc e,

 Complianc e,

 and

 Effecti v eness

  16

 Designing

 Effecti v e

 Fiscal

 Rules

 in

 Smaller

 Countries

  32

 Annex

 O A.

 Smaller

 Countries

 in

 the

 W orld,

 b y

 P opulation

 Size

 and

 Land

 Ar ea

  38

 Not es

  40

 Refer enc es

  41

 Chapter

 1:

 Structural

 Features

 and

 Business

 Cycles

 in

 Smaller

 Countries

  43

 Intr oduction

  44

 Structur al

 Char acteristics

 of

 Small

 Economies

  45

 Business

 Cy cles

 in

 Smaller

 Economies

  53

 Summary

 of

 Findings

  58

 Not es

  59

 Refer enc es

  60

 xi

 Chapter

 2:

 The

 Impact

 of

 Fiscal

 Rules

 on

 Fiscal

 Perfor mance

 63

 Intr oduction

  64

 T ax onom y

 of

 Fiscal

 Rules

  65 Pr esenc e

 of

 Fiscal

 Rules

  67

 Complianc e

 with

 Fiscal

 Rules

 and

 Contributing

 F act or s

  73 P erformanc e

 of

 Fiscal

 Rules

 83

 Summary

 of

 Findings

  91 Not es

  92

 Refer enc es

  93

  Chapter

 3:

 Designing

 Effective

 Fiscal

 Rules

 in

 Smaller

 Countries

 95

 Intr oduction

  95

 Objecti v es

 of

 Fiscal

 Rules

  97

 Comparing

 the

 W elf ar e

 Effects

 of

 Fiscal

 Rules

 in

 Smaller

 Economies

  102 Summary

 of

 Findings

  112

 Not es

  114

 Refer enc es

  115

  Chapter

 4:

 Summing

 Up:

 Implementing

 Pr actical

 Fiscal

 Rules in

 Smaller

 Countries

 117

  Boxes

 2.1

 Fiscal

 Councils

  79

 3.1

 Establishing

 W ell-Defined

 Escape

 Clauses

  101

 3.2

 Key

 Principles

 for

 Establishing

 a

 Sa vings

 F und t o

 Addr ess

 High

 Volatility in

 Smaller

 Economies

  103

  Figur es

 O.1 A v er ag e

 Fiscal

 Balance

 and

 Debt

 Lev el

 as

 a

 P er centag e

 of

 GDP

 in

 LA C

 Countries, 2000–08

 v er sus

 2009–19

  2

 O.2 Fiscal

 Balance

 as

 a

 Shar e

 of

 GDP

 in

 LA C

 and

 the

 W orld,

 b y

 Country

 Size, 2000–17

  3

 O.3 Go v ernment

 Debt

 as

 a

 Shar e

 of

 GDP

 in

 LA C

 and

 the

 W orld,

 b y

 Country

 Size, 2017

  3

 O.4 Gr owth

 and

 Volatility

 of

 GDP

 per

 Capita

 and

 Pri v at e

 Consumption

 in

 LA C

 and the

 W orld,

 b y

 Country

 Size,

 2000–17

 5

 O.5 Structur al

 F eatur es

 of

 Countries

 in

 LA C

 and

 the

 W orld,

 b y

 Country

 Size

  10

 O.6 Losses

 Due

 t o

 Natur al

 Disast er s

 in

 LA C

 and

 the

 W orld,

 b y

 Country

 Size

  12

 O.7 A

 Basic

 T ax onom y

 of

 Fiscal

 Rules

  14

 O.8 Number

 of

 Fiscal

 Rules,

 b y

 T ype

 of

 Rule,

 1985–2015

  17

 O.9 Number

 of

 National

 or

 Supr anational

 Fiscal

 Rules

 in

 LA C,

 1985–2019

  17

 O.10 Use

 of

 Fiscal

 Rules,

 b y

 T ype

 of

 Rule,

 Region,

 and

 Country

 Size,

 2015

 18

 O.11 Complianc e

 with

 Fiscal

 Rules,

 b y

 Country

 Size

 and

 Region,

 2000–15

 23

 O.12 Complianc e

 with

 Fiscal

 Rules

 in

 LA C

 and

 the

 W orld,

 b y

 T ype

 of

 Rule

 and

 Country Size,

 2000–15

  24

 O.13 Fiscal

 Rule

 Str ength

 Inde x

 (FSRI),

 b y

 T ype

 of

 Rule

 and

 Complianc e,

 1985–2013

  26

 O.14 Impact

 of

 Fiscal

 Rules

 on

 the

 Responsi v eness

 of

 the

 Primary

 Balance

 t o

 Chang es

 in the

 St ock

 of

 Debt,

 b y

 T ype

 of

 Rule

 and

 Country

 Size

  28

 O.15 Impact

 of

 Fiscal

 Rules

 on

 Public

 Debt

 Levels

 and

 Fiscal

 Balanc es,

 b y

 T ype

 of

 Rule and

 Country

 Char acteristics

  29

 O.16 Impact

 of

 Fiscal

 Rules

 on

 10-Year

 Expenditur e

 Pr ocy clicality , b y

 T ype

 of

 Rule

 and Country

 Char acteristics

 30

 O.17 Impact

 of

 Combined

 Fiscal

 Rules

 on

 the

 Responsi v eness

 of

 the

 Primary

 Balance

 t o Chang es

 in

 the

 Debt

 St ock,

 b y

 Combination

 of

 Rules

 31

 1.1

 Char acteristics

 of

 Small

 Countries

  45

 1.2

 Structur al

 F eatur es

 of

 Countries

 in

 LA C

 and

 the

 W orld,

 b y

 Country

 Size, 2000–15

  47

 1.3

 Conc entr ation

 of

 Exports

 in

 LA C

 and

 the

 W orld,

 b y

 Country

 Size,

 1995–2013

  48

 1.4

 Go v ernment

 Spending

 as

 P er centag e

 of

 GDP

 in

 LA C

 and

 the

 W orld,

 b y

 Country Size,

 2000–15

  49

 1.5

 P er centag e

 of

 Countries

 with

 Fix ed

 Exchang e

 R at e

 Regimes

 in

 LA C

 and

 the

 W orld, b y

 Country

 Size,

 2000–15

 50

 1.6

 V alue

 of

 Losses

 Due

 t o

 Natur al

 Disast er s

 in

 LA C

 and

 the

 W orld,

 b y

 Country

 Size, 2000–15

  51

 1.7

 Unemplo yment

 Levels

 and

 Volatility , b y

 Country

 Size

 56

 2.1

 A

 Basic

 T ax onom y

 of

 Fiscal

 Rules

  65

 2.2

 Number

 of

 Fiscal

 Rules,

 b y

 Country

 Size

 and

 Region,

 1985–2015

  67

 2.3

 P er c ent

 of

 Countries

 with

 Fiscal

 Rules,

 b y

 Country

 Size

 and

 Region,

 2015

 68

 2.4

 Number

 of

 Fiscal

 Rules,

 b y

 T ype

 of

 Rule,

 1985–2015

  69

 2.5

 Use

 of

 Fiscal

 Rules,

 b y

 T ype

 of

 Rule,

 Region,

 and

 Country

 Size,

 2015

  70

 2.6

 Use

 of

 a

 Combination

 of

 Fiscal

 Rules,

 b y

 Country

 Size

 and

 Region,

 2015

 72

 2.7

 A v er ag e

 Complianc e

 with

 Fiscal

 Rules,

 b y

 T ype

 of

 Rule

 and

 befor e

 and

 aft er

 the Global

 Financial

 Crisis,

 2000–15

 75

 2.8

 Complianc e

 with

 Fiscal

 Rules,

 b y

 Country

 Size

 and

 Region,

 2000–15

  76

 2.9

 Complianc e

 with

 Fiscal

 Rules,

 b y

 T ype

 of

 Rule,

 Country

 Size,

 and

 Region, 2000–15

  77

 2.10

 Fiscal

 Rules

 and

 the

 Over all

 Fiscal

 Fr amew or k

  81

 2.11

 Fiscal

 Rule

 Str ength

 Inde x

 (FRSI),

 b y

 T ype

 of

 Rule

 and

 Complianc e,

 1985–2013

 82

 2.12

 Impact

 of

 Fiscal

 Rules

 on

 10-Year

 Pr ocy clicality , b y

 T ype

 of

 Rule

 and

 Country Char acteristics

  85

  2.13

 Impact

 of

 Fiscal

 Rules

 on

 Public

 Debt

 Lev els,

 b y

 T ype

 of

 Rule

 and

 Country Char acteristics

 86

  2.14

 Impact

 of

 Fiscal

 Rules

 on

 the

 Responsi v eness

 of

 the

 Primary

 Balance

 t o Chang es

 in

 the

 St ock

 of

 Debt,

 b y

 T ype

 of

 Rule

 87

  2.15

 Impact

 of

 Fiscal

 Rules

 on

 the

 Responsi v eness

 of

 the

 Primary

 Balance

 t o Chang es

 in

 the

 Debt

 St ock,

 b y

 T ype

 of

 Rule

 and

 Country

 Size

 88

  2.16

 Impact

 of

 Fiscal

 Rules

 on

 the

 Responsi v eness

 of

 the

 Primary

 Balance

 t o Chang es

 in

 the

 St ock

 of

 Debt,

 b y

 Combinations

 of

 Rules

 89

  3.1

 T ypes

 of

 Fiscal

 Rules

 and

 Objecti v es

  98

  3.2

 W elf ar e

 Gains

 fr om

 Adopting

 Structur al

 Balance

 Rules

 or

 Budget Balance

 Rules

  105

  3.3

 W elf ar e

 Gains

 fr om

 Reducing

 Rev enue

 Volatility

 with

 Structur al

 Balance Rules

 or

 Budget

 Balance

 Rules

  106

  3.4

 W elf ar e

 Gains

 fr om

 Adopting

 Structur al

 Balance

 Rules

 or

 Budget

 Balance Rules

 with

 an

 Initial

 Pr ocy clicality

 of

 1.15

  107

  3.5

 W elf ar e

 Gains

 fr om

 Adopting

 Structur al

 Balance

 Rules

 or

 Budget

 Balance Rules

 in

 a

 Cont e xt

 of

 Asymmetric

 Shocks

  108

  3.6

 W elf ar e

 Losses

 and

 P er sist enc e

 of

 Shocks

 under

 Budget

 Balance

 Rules

 and Structur al

 Balance

 Rules

 109

  3.7

 Spillo v er s

 fr om

 Oil

 Pric es

 t o

 Nonr esour c e

 GDP

 in

 Alg eria, T rinidad

 and

 T obag o,

 1960–2015

  111

  T ables

 O.1 Regression

 Coefficients

 of

 Go v ernment

 Spending

 Gr owth

 on

 GDP

 Gr owth

 in

 LA C

 and

 the

 W orld,

 b y

 Country

 Size,

 2000–15

  4

  O.2 Regression

 of

 Volatilities

 on

 Continuous

 P opulation

 Size

  13

  O.3 Dur ation

 and

 Amplitude

 of

 Expansions

 and

 Contr actions

 of GDP , b y

 Country

 Size

  13

  O.4 Effects

 of

 Fiscal

 Rules:

 Summary

 of

 Findings

  31

  O.5 Crit eria

 for

 the

 Selection

 of

 Fiscal

 Rules

  36

  1.1

 Small

 and

 V ery

 Small

 Countries

 in

 LA C

 and

 Non-LA C

 Regions,

 b y P opulation

 Size

 and

 Land

 Ar ea

  44

  1.2

 Economic

 Size

 and

 Structur al

 F eatur es

 of

 Smaller

 Economies

  52

  1.3

 Volatility

 and

 Economic

 Size,

 b y

 Country

 Size,

 1960–2014

  55

  1.4

 Dur ation

 and

 Amplitude

 of

 Expansions

 and

 Contr actions

 of

 GDP , b y

 Country

 Size

  56

 1.5

 V arianc e

 Dec omposition

 of

 GDP

 Volatility , b y

 P opulation

 Size

  57

 2.1

 Effects

 of

 Fiscal

 Rules:

 Summary

 of

 Findings

  90

 3.1

 P er sist enc e

 of

 Commodity

 Pric e

 Shocks

 and

 Optimal

 Expenditur e

 Response, b y

 Commodity

  110

 Pref ace

  This stud y

 and

 its

 backgr ound

 paper s

 w er e

 pr epared

 befor e

 the

 CO VID-19

 health pandemic

 engulfed

 the

 w orld,

 causing

 major

 ec onomic

 f allout.

 The

 r esear ch

 and

 wri - ting

 w er e

 c onduct ed

 between

 2017

 and

 2019.

 P art

 of

 the

 moti v ation

 for

 this

 w or k came

 fr om

 the

 author s’

 r eflections

 follo wing

 the

 c ollapse

 of

 commodity

 pric es

 and ensuing

  t erms-of-tr ade

  shock

  in

  2014–15,

 which

  pulled

  man y

  c ountries

  in

  Latin America

 and

 the

 Caribbean

 (LA C)

 int o

 a

 r ec ession

 and

 e xposed

 massi v e

 fiscal

 and structur al

 vulner abilities.

 Onl y

 some

 c ountries

 had

 sa v ed

 the

 c ommodities’

 windf all o v er

 2010–14,

 including

 thr ough

 the

 use

 of

 fiscal

 rules,

 cr eating

 the

 buffer s

 needed

 t o cushion

 this

 ad v er se

 shock.

 Lik e

 then,

 man y

 LA C

 c ountries

 ent er ed

 2020

 with

 limit ed fiscal

 buffer s—at

 a

 time

 when

 the

 CO VID-19

 crisis

 r equir es

 a

 significant

 fiscal

 impulse t o

 support

 jobs,

 firms,

 and

 households.

 A

 lesson

 then

 and

 no w

 is

 that

 fiscal

 policy

 mechanisms

 that

 enable

 c ountries

 t o sa v e

 in

 g ood

 times

 so

 that

 the

 savings

 can

 be

 used

 during

 r ain y

 da y s—or

 st orm y

 ones lik e

 those

 the

 w orld

 is

 enduring

 t oda y—ar e

 critical.

 A

 w ell-designed,

 w ell-implemen - t ed

 fiscal

 rules

 fr amew or k

 can

 be

 essential

 in

 achieving

 this

 aim.

 CO VID-19’s

 ec onomic

 impact

 in

 the

 LA C

 r egion

 will

 be

 deep.

 Ac c or ding

 t o

 the W orld

 Bank’s

 Gl obal

 Economic

 Pr ospects

 ( June

 2020),

 the

 LA C

 r egion’s

 gross

 domes - tic

 pr oduct

 is

 e xpect ed

 t o

 c ontr act

 b y

 mor e

 than

 7

 per c ent

 in

 2020,

 leading

 t o

 massi v e job

 losses

 and

 wiping

 out

 a

 large

 shar e

 of

 the

 po v erty

 r eduction

 achiev ed

 o v er

 the

 past tw o

 decades.

 Small

 c ountries

 in

 the

 r egion

 ar e

 being

 especiall y

 hard-hit

 gi v en

 their

 lo w ec onomic

 di v er sification

 and

 high

 e xposur e

 t o

 e xt ernal

 shocks.

 The

 output

 c ollapse

 of 2020

 in

 this

 r egion

 is

 e xpect ed

 t o

 outstrip

 the

 decline

 e xperienc ed

 during

 the

 Gr eat Depr ession

 (1929–1933).

 In

 this

 c ont e xt,

 fiscal

 policy

 has

 a

 big

 r ole

 t o

 pla y , suppor - ting

 aggr eg at e

 demand

 and

 k eeping

 a

 shock

 that

 c ould

 be

 t empor ary

 fr om

 dr agging

 on long er . But

 as

 sho wn

 in

 this

 stud y

 and

 other s,

 fiscal

 policy

 in

 the

 LA C

 r egion

 has

 t en - ded

 t o

 be

 highl y

 pr ocy clical,

 fueling

 ongoing

 ec onomic

 upswings

 thr ough

 public spending

 and

 w or sening

 do wnswings

 thr ough

 c ontr actionary

 fiscal

 polic y . When

 the CO VID-19

 crisis

 hit,

 the

 LA C

 r egion

 and

 most

 emerging

 ec onomies

 w er e

 in

 a

 period

 of

 gr o wing

 public

 spending,

 high

 public

 debt

 (c ompar ed

 with

 2009

 and

 2014),

 and limit ed

 fiscal

 spac e

 o v er all

 t o

 r eact

 c ount er cy clicall y . Heightened

 global

 risk

 a v er sion will

 tight en

 ac c ess

 t o

 cr edit

 mar k ets,

 especiall y

 for

 highl y

 indebted

 c ountries

 with mor e

 vulner able

 macroeconomic

 positions.

 So

 wh y

 is

 it

 critical

 t o

 talk

 about

 fiscal

 rules

 t oda y?

 Onl y

 the

 c ountries

 that

 sa v ed during

 the

 g ood

 y ear s,

 including

 thr ough

 fiscal

 rule

 mechanisms,

 ha v e

 and

 ar e

 emplo - ying

 their

 sa v ed

 fiscal

 fir epo w er

 t o

 smooth

 the

 shock

 and

 pr ot ect

 their

 r eal

 ec onomies and

 households.

 Indeed,

 establishing

 a

 fiscal

 rules

 fr amew or k

 t oda y

 w ould

 not

 help

 in this

 crisis.

 These

 fr amew or ks

 r equir e

 car eful

 design,

 a

 political

 c onsensus,

 and

 time

 t o be

 implement ed

 adequat el y , if

 they

 ar e

 t o

 be

 r ead y

 and

 functioning

 b y

 the

 next

 ec ono - mic

 cy cle.

 Thus,

 policy

 mak er s

 need

 t o

 start

 thinking

 t oda y

 about

 the

 need

 t o

 impro v e fiscal

 fr amew or ks

 and

 adopt

 fiscal

 rules.

 The

 CO VID-19

 crisis

 has

 sho wn

 us

 that “black

 sw an”

 or

 tail-risk

 ev ents

 might

 be

 mor e

 fr equent

 than

 in

 the

 past.

 Aside

 fr om

 all of

 the

 g ood

 r easons

 for

 establishing

 a

 w ell-designed,

 w ell-implement ed

 sy st em

 of

 fiscal rules,

 which

 ar e

 detailed

 in

 this

 stud y , this

 ongoing

 global

 crisis

 has

 gi v en

 policy

 mak er s another

 po werful

 r eason

 for

 placing

 this

 policy

 on

 the

 fr ont

 burner

 t o

 r ebuild

 the

 fiscal and

 institutional

 fr amew or ks

 of

 LA C’s

 and

 all

 emerging

 ec onomies

 in

 a

 bett er

 and str ong er

 w a y .

 Car los

 F elipe

 Jar amillo

 V ice

 Pr esident Latin

 America

 and

 the

 Caribbean

 Region

 W orld

 Bank

 Acknowledgments

  This stud y

 is

 part

 of

 the

 Regional

 Studies

 Pr ogr am

 of

 the

 Offic e

 of

 the

 Regional

 Chief Ec onomist,

 Latin

 America

 and

 the

 Caribbean

 Vice

 Pr esidency

 of

 the

 W orld

 Bank. This main

 stud y

 was

 writt en

 b y

 Fernando

 Blanc o,

 Friederik e

 Koehler-Geib,

 P ablo Saa v edr a,

 and

 Emilia

 Skrok.

 The

 stud y

 was

 based

 on

 a

 series

 of

 backgr ound

 and

 r esear ch

 paper s

 pr epared

 b y Al v ar o

 A guirre,

 Jan

 Gaska,

 Klaus

 Schmidt

 Hebbel,

 V ik t ori y a

 Hnatko vska,

 P aulina E w a

 Holda,

 Friederik e

 Koehler-Geib,

 Arthur

 Mendes,

 St ev en

 P ennings,

 Emilia

 Skrok, and

 Raimundo

 Soto.

 Substanti v e

 c ontributions

 w er e

 pr o vided

 b y

 V inc ent

 De

 P aul T soungui

 Beling a,

 James

 Sampi

 Br a v o,

 Edg ar do

 F a v ar o,

 Aleksandr a

 Ignaczak,

 and Ana

  Maria

  Jul.

  Edit orial

  and

  pr oduction

  assistanc e

  was

  pr o vided

  b y

  Elizabeth For sythe,

 Am y

 Lynn

 Gr ossman,

 Alfr ed

 Imhoff,

 P atricia

 K aty ama,

 and

 Sean

 Lothr op. P atricia

 Chac on

 Holt,

 Giselle

 V elasquez,

 and

 Miriam

 Villarroel

 pr o vided

 e xc ellent assistanc e.

 The

 t eam

 w ould

 lik e

 t o

 thank

 Jorge

 Thompson

 Ar aujo,

 Elena

 Iancho vichina, Daniel

 Lederman,

 A ugust o

 de

 la

 T orr e,

 and

 Car los

 V egh

 for

 their

 e xc ellent

 ad vic e

 and support.

 The

  t eam

  is

  also

  thankful

  t o

  Jorge

  Thompson

  Ar aujo,

 César

  Calder ón, Fr ancisc o

 Galrao

 Carneir o,

 Norbert

 Fiess,

 Zafer

 Mustaf aoglu,

 and

 the

 anon ymous peer

  r eview er s

  fr om

  the

  Latin

  American

  Dev elopment

  Forum

  for

  their

  v aluable comments.

 About

 the

 Authors

  F ernando

 Blanc o

 is

 an

 ec onomist

 who

 has

 specialized

 in

 macroeconomics

 and

 fiscal polic y . He

 joined

 the

 W orld

 Bank

 in

 2002

 and

 has

 w or k ed

 in

 the

 Africa,

 Latin

 America and

 the

 Caribbean,

 Middle

 East

 and

 North

 Africa,

 and

 South

 Asia

 r egions

 in

 the Macroeconomics,

 T r ade,

 and

 In v estment

 Global

 Pr actic e.

 Curr entl y , he

 is

 the

 princi - pal

 ec onomist

 for

 Eur ope

 and

 Centr al

 Asia

 at

 the

 Int ernational

 Financ e

 Corpor ation

 in the

 W orld

 Bank

 Group.

 Before

 joining

 the

 W orld

 Bank,

 he

 serv ed

 as

 an

 associat e r esear cher

 for

 the

 Institut e

 of

 Applied

 Economics

 Resear ch,

 at

 a

 g o v ernment

 think tank

 in

 Br azil,

 and

 as

 a

 pr ofessor

 of

 public

 ec onomics

 and

 int ernational

 ec onomics

 at the

 Br azilian

 Institut e

 of

 Capital

 Mar k ets

 and

 the

 P ontifical

 Catholic

 Uni v er sity

 of

 Rio de

 Janeir o.

 He

 holds

 a

 PhD

 in

 ec onomics

 fr om

 the

 P ontifical

 Catholic

 Uni v er sity

 of Rio

 de

 Janeir o.

 Friederik e

  (Fritzi)

  Koehler-Geib

  is

  KfW

  Gr oup’s

  chief

  ec onomist

  and

  head

  of Resear ch.

 In

 this

 capacit y , she

 anal y zes

 with

 her

 t eam

 ec onomic

 developments

 and gr o wth

 tr ends

 in

 German y , Eur ope,

 and

 the

 w orld.

 She

 has

 a

 particular

 focus

 on

 small and

 medium

 ent erprises,

 the

 r ole

 of

 inno v ation

 and

 digitalization

 in

 impro ving

 pr o - ducti vit y , as

 w ell

 as

 issues

 r elat ed

 t o

 the

 g oal

 of

 a

 climat e-neutr al

 ec onom y . Pr eviousl y , she

 spent

 mor e

 than

 10

 y ear s

 at

 the

 W orld

 Bank,

 most

 r ec entl y

 as

 lead

 ec onomist

 and pr ogr am

 leader

 for

 Centr al

 America.

 She

 has

 published

 r esear ch

 and

 w or k ed

 with policy

 mak er s

 in

 v arious

 c ountries

 on

 r eforms

 r eg ar ding

 ec onomic

 gr o wth,

 financial crises,

 and

 fiscal

 policy

 with

 a

 focus

 on

 public

 e xpenditur es

 and

 fiscal

 rules.

 She

 holds a

 PhD

 in

 ec onomics

 fr om

 Lud wig

 Maximilian

 Uni v er sity

 of

 Munich

 and

 tw o

 mast er’s degr ees

 fr om

 Uni v er sity

 of

 St.

 Gallen,

 HEC

 P aris,

 and

 the

 Uni v er sity

 of

 Michig an.

 Pablo

 Saa v edr a

 is

 an

 ec onomist

 who

 has

 serv ed

 in

 sev er al

 positions

 of

 r esponsibility in

 v arious

 r egions

 and

 departments

 at

 the

 W orld

 Bank.

 He

 is

 curr entl y

 the

 W orld Bank’s

 c ountry

 dir ect or

 for

 Mexic o.

 Pr eviousl y , he

 serv ed

 as

 manag er

 of

 the

 W orld Bank’s

 Macroeconomics

 and

 Fiscal

 Manag ement

 Department

 for

 Latin

 America

 and the

 Caribbean,

 an

 ec onomic

 ad viser

 for

 the

 P olicy

 and

 Str at egy

 Department,

 a

 sect or

 leader

 for

 Economic

 P olic y , and

 senior

 ec onomist

 for

 Belarus,

 Poland,

 and

 Ukraine, among

 other

 c ountries.

 He

 has

 c onduct ed

 r esear ch

 and

 w or k ed

 with

 policy

 mak er s

 in c ountries

  ar ound

  the

  w orld

  t o

  implement

  r eforms

  on

  issues

  r elat ed

  t o

  ec onomic gr o wth,

 including

 macroeconomics

 and

 fiscal

 policies,

 tax

 and

 spending

 policies,

 and fiscal

 rules.

 He

 holds

 a

 PhD

 fr om

 the

 Georgia

 Institut e

 of

 T echnolog y . Emilia

  Skr ok

  is

  a

  pr ogr am

  leader

  in

  the

  W orld

  Bank’s

  Macroeconomics,

 Fiscal Manag ement,

 Go v ernance,

 Po v ert y , and

 Equity

 Department.

 She

 joined

 the

 W orld Bank

 in

 2005.

 Pr eviousl y , she

 serv ed

 as

 an

 ec onomist

 on

 the

 Economic

 and

 Mar k et Resear ch

 T eam

 at

 the

 T r easury

 Department

 of

 Bank

 PEKA O

 S.A.,

 the

 larg est

 pri v at e bank

 in

 Poland,

 and

 as

 a

 senior

 ec onomist

 in

 the

 Department

 of

 Financial

 P olic y , Anal y sis,

 and

 Statistics

 in

 P oland’s

 Ministry

 of

 Finance.

 She

 has

 taught

 int ernational c ompar ati v e

 ec onomics

 at

 the

 W ar saw

 School

 of

 Economics.

 Her

 r esear ch

 focuses

 on fiscal

 policy

 anal y sis,

 including

 tax

 and

 spending

 policies

 and

 fiscal

 institutions

 at

 both the

 national

 and

 subnational

 lev els.

 She

 holds

 a

 PhD

 in

 ec onomics

 fr om

 the

 SGH W ar saw

 School

 of

 Economics.

 Abbreviations

  EECU

 East ern

 Caribbean

 Curr ency

 Union FDI

 for eign

 dir ect

 in v estment

 FRSI

 Fiscal

 Rule

 Str ength

 Inde x GDP

 gross

 domestic

 pr oduct GNI

 gross

 national

 income

 LA C

 Latin

 America

 and

 the

 Caribbean

 Over view

 Setting

 the

 Scene

 The

 fiscal

 position

 of

 most

 c ountries

 in

 Latin

 America

 and

 the

 Caribbean

 (LA C) has

  det erior at ed

  in

  the

  last

  decade.

 T o

  addr ess

  the

  flagging

  gr o wth

  of

  gross d o m e stic

  pr oduct

  (GDP)

  in

  the

  aft ermath

  of

  the

  2008

  global

  financial

  crisis, g o v ernments

  across

  the

  r egion

  launched

  pr otr act ed

  e xpansions

  of

  spending, which

 in

 man y

 cases

 er oded

 the

 fiscal

 buffer s

 built

 in

 the

 pr ecrisis

 period.

 E v en though

 ec onomic

 gr o wth

 r ec o v er ed

 as

 a

 r esult

 of

 massi v e

 t erms-of-tr ade

 g ains o v er

 2010–14,

 g o v ernments

 did

 not

 use

 the

 ec onomic

 upturn

 as

 an

 opportunity

 t o impro v e

 their

 fiscal

 balanc es

 and

 cur b

 indebt edness.

 On the

 c ontr ar y , g o v ernment spending

 and

 fiscal

 deficits

 c ontinued

 t o

 gr o w

 (De

 la

 T orr e,

 Ize,

 and

 Pienknagur a 2015).

 Then,

 the

 commodity

 pric e

 shock

 in

 2014–15

 hampered

 GDP

 gr o wth

 at

 a time

 when

 onl y

 a

 few

 c ountries

 had

 sufficient

 fiscal

 spac e

 t o

 att enuat e

 its

 neg ati v e effects;

 deficits

 and

 indebt edness

 det erior at ed

 further . The

 LA C

 r egion’s

 a v er ag e fiscal

 deficit

 r ose

 fr om

 1.9

 per c ent

 of

 GDP

 in

 2000–08

 t o

 3.5

 per c ent

 in

 2009–19, pushing

 the

 a v er ag e

 stock

 of

 public

 debt

 fr om

 41

 per c ent

 of

 GDP

 in

 2008

 t o 62

 per c ent

 in

 2019)

 (figure

 O.1).

 Smaller

 c ountries

 in

 LA C

 ha v e

 had

 mar k edl y

 large

 fiscal

 deficits. 1

 Betw een

 2000

 and

 2019,

 these

 c ountries

 had

 an

 a v er ag e

 fiscal

 deficit

 of

 2.7

 per c ent

 of

 GDP , f ar

 abo v e the

 a v er ag e

 of

 0.5

 per c ent

 for

 smaller

 c ountries

 w orld wide

 and

 2.2

 per c ent

 for

 larg er c ountries

 in

 the

 LA C

 r egion.

 The

 r egion’s

 v ery

 small

 c ountries

 performed

 ev en

 w or se, r egist ering

 an

 a v er ag e

 fiscal

 deficit

 of

 3.2

 per c ent

 of

 GDP

 v er sus

 a

 global

 a v er ag e

 for v ery

 small

 c ountries

 of

 0.1

 per c ent.

 The

 a v er ag e

 fiscal

 deficit

 for

 large

 ec onomies

 in LA C

 was

 onl y

 marginall y

 w or se

 than

 the

 a v er ag e

 for

 large

 c ountries

 w orld wide,

 which sugg ests

 that

 the

 fiscal

 performanc e

 of

 smaller

 LA C

 c ountries

 is

 not

 associat ed

 solel y with

 r egional

 patt erns;

 it

 is

 also

 associat ed

 with

 other

 featur es

 that

 ar e

 assessed

 in

 this stud y

 (figure

 O.2).

 Due

 t o

 large

 fiscal

 deficits,

 public

 debt

 lev els

 ha v e

 risen

 r apidl y

 among

 small ec onomies

 in

 LA C.

 By

 2019,

 small

 LA C

 ec onomies

 had

 an

 a v er ag e

 debt

 stock

 of 66

 per c ent

 of

 GDP , with

 an

 a v er ag e

 of

 76

 per c ent

 for

 v ery

 small

 c ountries.

 W orld wide, small

 c ountries

 had

 a

 debt

 stock

 of

 58

 per c ent

 of

 GDP , with

 an

 a v er ag e

 of

 60

 per c ent

 FIGURE

 O.1:

 A ver age

 Fiscal

 Balance

 and

 Debt

 Level

 as

 a

 Per centage

 of

 GDP in

 LAC

 Countries,

 2000–08

 versus

 2009–19

  20

  16

  12

  8

  4

  0

  –4

  –8

  –12

  –16

  –20

  150

  120

  90

  60

  30

  0

  –30

  –60

  –90

  –120

  –150

  Fi scal

 balance,

 2000–08

 Fi scal

 balance,

 2009–19

  Debt ,

 2008

  LA C

 debt ,

 2019

  Source:

 Calcula tions

 based

 on

 da ta

 from

 W orld

 Development

 Indica tors

 (W orld

 Bank).

  for

 v ery

 small

 c ountries.

 In

 c ontr ast,

 in

 LA C

 the

 a v er ag e

 debt

 stock

 for

 larg er

 c ountries was

 42

 per c ent

 of

 GDP , a

 lev el

 much

 lo w er

 than

 the

 w orld wide

 a v er ag e,

 wher e

 larg er c ountries

 had

 an

 a v er ag e

 debt

 lev el

 of

 57

 per c ent

 of

 GDP . Ther efor e,

 smaller

 c ountries in

 LA C,

 particular l y

 the

 v ery

 small

 ones,

 e xhibit ed

 higher

 indebt edness

 that

 cannot

 be attributed

 solel y

 t o

 their

 g eogr aphic

 location.

 The

 poor er

 fiscal

 performanc e

 of

 smaller

 LA C

 c ountries

 is

 associat ed

 with

 their gr eat er

  e xposur e

  t o

  e x og enous

  v olatilit y ,

 including

  natur al

  disast ers.

  Ex og eneous f act or s

 ha v e

 c ontributed

 t o

 w or sening

 fiscal

 balanc es

 and

 ac c elerating

 indebt edness

 in smaller

 c ountries

 in

 the

 r egion.

 Fr equent,

 int ense

 natur al

 disast er s

 ha v e

 pr essur ed g o v ernment

  spending

  and

  neg ati v el y

  affect ed

  ec onomic

  acti vity

  and

  g o v ernment r ev enues.

 The

 neg ati v e

 impacts

 of

 fr equent

 natur al

 disast er s

 suffer ed

 b y

 small

 and v ery

  small

  LA C

  countries—particular l y

  Caribbean

  c ountries—ha v e

  r esult ed

  in significant

 slo w do wns

 in

 GDP , high

 fiscal

 costs

 t o

 r epair

 damag ed

 infr astructur e,

 and high

 v olatility

 of

 output

 and

 c onsu...