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Fiscal Rules and the Management of Natural Resource Revenues: The Case of Chile

Posted: 8 Oct 2014  

Luis Felipe Céspedes

Adolfo Ibanez University

Eric Parrado

Central Bank of Chile

Andrés Velasco

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Date Written: November 2014

Abstract

Over the past quarter-century, Chile has proven that the unthinkable is possible: A middle-income, natural resource–producing nation can have a fiscal policy that is both stable and sustainable. The core of this policy has been very simple: Act responsibly, design policy for the long run, and accumulate enough fiscal space so that fiscal policy can play a stabilizing role in the short run. The approach implies saving during periods of high copper prices and using those accumulated resources during a global economic crisis. Shifting from a procyclical to a mildly countercyclical fiscal stance has helped to smooth public investment and social expenditures across the cycle. One example of this countercyclical policy was Chile’s reaction to the 2008–2009 world financial crisis. Thus, this article argues that Chile’s approach contains ideas and practices that may be useful in the design of fiscal policies and institutions in other commodity-producing nations.

Suggested Citation

Céspedes, Luis Felipe and Parrado, Eric and Velasco, Andrés, Fiscal Rules and the Management of Natural Resource Revenues: The Case of Chile (November 2014). Annual Review of Resource Economics, Vol. 6, Issue 1, pp. 105-132, 2014. Available at SSRN: https://ssrn.com/abstract=2507244 or http://dx.doi.org/10.1146/annurev-resource-100913-012856

Luis Cespedes (Contact Author)

Adolfo Ibanez University ( email )

Diagonal Las Torres 2640 Peñaleón
Presidente Errázuriz 3485 Las Condes
Santiago, 794-1169
Chile

Eric Parrado

Central Bank of Chile ( email )

Agustinas 1180
Santiago
Chile

Andrés Velasco

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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