Budget rigidity in Latin America and the Caribbean : causes, consequences, and policy implications / Santiago Herrera and Eduardo Olaberria.

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Bibliographic Details
Author / Creator:	Herrera, Santiago, author.
Imprint:	Washington, DC : World Bank Group, [2020] ©2020
Description:	xiii, 54 pages : illustrations (some color) ; 28 cm.
Language:	English
Series:	International development in focus International development in focus.
Subject:	Government spending policy -- Latin America. Government spending policy -- Caribbean Area. Economic history Government spending policy Latin America -- Economic conditions. Caribbean Area -- Economic conditions. Caribbean Area Latin America
Format:	Print Book
URL for this record:	http://pi.lib.uchicago.edu/1001/cat/bib/12406798

Hidden Bibliographic Details
Other authors / contributors:	Olaberría, Eduardo, author.
ISBN:	1464815208 9781464815201
Notes:	Includes bibliographical references.
Summary:	Policy makers in Latin America and the Caribbean often complain that poor fiscal performance in their countries is a result of a high degree of spending rigidity. Despite being a common complaint, the issue has remained largely ignored by the literature because of the lack of adequate measures of rigidity that allow cross-country and time series comparability. This report helps close this gap by introducing a new measure of spending rigidities that can be easily applied to multiple countries. It focuses on the categories of spending that are naturally inflexible-- wages, pensions, transfers to subnational governments, and debt service-- and separates them into two components: structural and nonstructural. The structural component is determined by economic, demographic, and institutional fundamentals. The nonstructural component is determined by short-run transitory factors associated with business and political cycles. The degree of rigidity of spending is then proxied by the ratio of structural spending to total spending, with a higher value indicating that spending is driven mostly by factors out of the policy makers' control. This concept of rigidity was applied to 120 countries and produced several interesting results: " Advanced economies and developing countries in other regions have higher levels of rigidity than countries in LAC. " The sources of rigidity vary by country. " Higher rigidity is associated with higher spending levels, higher tax rates, higher public debt, and lower efficiency of public spending. " Rigidity has pervasive effects on fiscal sustainability, increasing the country's financing needs and reducing the probability of the country starting a fiscal adjustment. Given these pervasive effects of spending rigidity, the report concludes by discussing several policies to contain the sources of rigidity in the long term, ranging from the importance of deepening the pension reform process to the need of establishing strong fiscal institutions promoting medium-term fiscal planning.

Table of Contents:

Acknowledgments
About the Authors
Executive Summary
Abbreviations
Chapter 1. Introduction
References
Chapter 2. Definition, Origins, and Sources of Budget Rigidities
Structural sources of budget rigidities
Economic development and the size of government
Political economy and rigidities resulting from institutional weaknesses
Fragmentation of the budget process
Opacity of the budget process
External constraints on budgetary decisions
The legal versus the management functions of the budget
Note
References
Chapter 3. Measurement of Rigidity and Stylized Facts
The wage bill: Wages and public employment
Public employment
Pension payments
Transfers to subnational governments
Aggregate measure of rigidity
Notes
References
Chapter 4. Policy Implications
Rigidities and the government's net worth-debt sustainability
Rigidities and the ability to perform fiscal adjustment
Rigidities and the cyclically of fiscal policy
Rigidities and the efficiency of public spending
Notes
References
Chapter 5. Conclusion
Note
Appendix: Estimation of the Structural Component of Spending

Budget rigidity in Latin America and the Caribbean : causes, consequences, and policy implications / Santiago Herrera and Eduardo Olaberria.

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