Automatic fiscal stabilizers

Abstract

In this article, indicators of fiscal discretionality are estimated using a simple methodology, and in this way the cyclical component of the public accounts balance (i.e., the amounts of income and expenditure associated with transitory movements of the level of activity); is identified for a number of Latin American countries in the 1990s. The difference gives a measure of the discretional balance, which represents a medium-term indicator of the state of the public accounts. Budgetary rules which take account of these mechanisms not only ensure sustainability over time but also reduce the cyclical nature of the public finances, provided they are applied in a transparent and symmetrical manner. This method provides series which make it possible to follow up the structural and cyclical components of public deficits in Latin America, using a standard methodology and with minimal information needs, in order to focus the relevant discussions (and the necessary adjustments); on a medium-term horizon.