A Balancing Act: Reform Options for Paraguay's Fiscal Responsibility Law

34 Pages Posted: 9 Aug 2017

See all articles by Antonio C. David

Antonio C. David

World Bank - Policy Research Department; International Monetary Fund (IMF)

Natalija Novta

International Monetary Fund (IMF)

Date Written: November 2016

Abstract

Paraguay faces a trade-off between building fiscal credibility and amending the existing fiscal rule to accommodate infrastructure investment and provide space for countercyclical policies. In this paper, we discuss several alternative fiscal rules for Paraguay and present simulations of debt trajectories in each case, assuming a baseline and three deterministic shock scenarios. We provide a supplementary Excel file to replicate debt simulations under different fiscal rules. The results suggest that potential modifications to make the fiscal rules more flexible in Paraguay should be accompanied by a number of safeguards that enhance credibility of the fiscal anchor and preserve sustainability.

Keywords: Fiscal policy, Fiscal responsibility law, Fiscal rules, Paraguay, Fiscal Rules; Fiscal Governance; Paraguay, Fiscal Governance

JEL Classification: H30, H60, O23

Suggested Citation

David, Antonio C. and Novta, Natalija, A Balancing Act: Reform Options for Paraguay's Fiscal Responsibility Law (November 2016). IMF Working Paper No. 16/226. Available at SSRN: https://ssrn.com/abstract=3014031

Antonio C. David (Contact Author)

World Bank - Policy Research Department ( email )

1818 H Street
Washington, DC 20433
United States

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Natalija Novta

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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