Fiscal Policy, Stabilization and Growth

Fiscal policy in Latin America has been largely designed and implemented around short-term liquidity targets whose observance was taken as the main exponent of fiscal prudence. Until recently, very little attention had been paid to the effects of fiscal policy on growth and on macroeconomic volatility over the cycle. Instead, attention focused almost exclusively on the levels of public debt and the fiscal deficit. Important issues such as the composition of public expenditures (and its effects on growth), the ability of fiscal policy to stabilize cyclical fluctuations, and the currency composition of public debt were largely neglected. As a result, fiscal policy has often contributed to lower growth and to amplify cyclical fluctuations.This volume is concerned with the conduct of fiscal policy in Latin America, and its consequences for macroeconomic stability and long-term growth. In particular, the book examines the extent of the procyclical and anti-investment biases embedded in the region's fiscal policies, their causes and macroeconomic consequences, as well as their possible solutions.