No AccessPolicy Research Working Papers22 Jun 2013The Size And Effectiveness Of Automatic Fiscal Stabilizers In Latin AmericaAuthors/Editors: Rodrigo SuescunRodrigo Suescunhttps://doi.org/10.1596/1813-9450-4244SectionsAboutPDF (0.5 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract:This paper measures the size of automatic fiscal revenue stabilizers and evaluates their role in Latin America. It introduces a relatively rich tax structure into a dynamic, stochastic, multi-sector small open economy inhabited by rule-of-thumb consumers (who consume their wages and do not save or borrow) and Ricardian households to study the stabilizing properties of different parameters of the tax code. The economy faces multiple sources of business cycle fluctuations: (1) world capital market shocks; (2) world business cycle shocks; (3) terms of trade shocks; (4) government spending shocks; and (5) nontradable and (6) tradable sector technology innovations. Calibrating the model economy to a typical Latin American economy allows the evaluation of its ability to mimic the region's observed business cycle frequency properties and the assessment of the quantitative relationship between tax code parameters, business cycle forcing variables, and business cycle behavior. The model captures many of the salient features of Latin America's business cycle facts and finds that the degree of smoothing provided by the automatic revenue stabilizers-described by various properties of the tax system-is negligible. Simulation results seem to suggest an invariance property for middle-income countries: the amplitude of the business cycle is independent of the tax structure. And government size-measured by the GDP ratio of government spending-plays the role of an automatic stabilizer, but its smoothing effect is very weak. Previous bookNext book FiguresReferencesRecommendedDetailsCited ByThe role of automatic stabilizers in business cycle: the case of indonesiaEuropean Journal of Government and Economics, Vol.10, No.21 December 2021Why Some Countries Can Escape the Fiscal Pro-Cyclicality Trap and Others Cannot?5 September 2019Determinants of social spending in Latin America during and after the Washington consensus: a dynamic panel error-correction model analysisLatin American Economic Review, Vol.26, No.117 November 2017The Cyclical Nature of Fiscal Policy in Sub-Saharan AfricaJournal of African Economies, Vol.25, No.420 May 2016The Role of Taxes as an Automatic Stabilizer: Evidence from TurkeyEconomic Analysis and Policy, Vol.43, No.3Managing macroeconomic risk28 January 2016Fiscal Policy in Sub-Saharan Africa in Response to the Impact of the Global CrisisIMF Staff Position Notes, Vol.2009, No.10 View Published: June 2007 Copyright & Permissions Related RegionsLatin America & CaribbeanRelated CountriesBoliviaBrazilEl SalvadorGuatemalaRelated TopicsFinance and Financial Sector DevelopmentMacroeconomics and Economic GrowthPrivate Sector Development KeywordsBANK POLICYBUSINESS CYCLECAPITAL MARKETFISCAL POLICYGOVERNMENT SPENDINGMACROECONOMIC VOLATILITYOPEN ECONOMYTAXTAX CODETAX SYSTEM PDF DownloadLoading ...