Fiscal rules in Latin America: a survey

This survey first discusses general characteristics, advantages, and disadvantages of different types of fiscal rules. It then reviews the experience with fiscal rules in seven Latin American countries. Only Chile targets cyclically adjusted indicators although Colombia is going the "Chilean way" and the Mexican rule offers some stabilization properties. Argentina, Brazil and Peru apply numerical rules targeting the overall/primary public balance and/or the public spending. The Venezuelan framework has been substantially diluted or abandoned after introduction. The institutional coverage depends on the degree of decentralization of the fiscal systems with many countries including debt limits to the subnational governments as a key tool to face the common pool problem that emerges in federal states. All in all, it seems that fiscal rules in Latin America have been more effective in helping to strengthen the long term sustainability than in responding to shocks as proved by the recent financial crisis. Fiscal rules have had to be fined tuned along the years and a "second generation" of fiscal rules may be necessary in order to increase their efficiency