Fiscal Responsibility Laws for Subnational Discipline: The Latin American Experience
19 Pages Posted: 20 Apr 2016
Date Written: May 17, 2004
Webb discusses fiscal responsibility laws in Latin America, with special attention to their provisions for fiscal discipline by subnational governments. He discusses why and when such laws might be useful - to help resolve the coordination problem in getting diverse governments to avoid overusing the common national credit market and to help individual governments make a time-consistent commitment for fiscal prudence. The author examines the cases of Argentina, Brazil, Colombia, and Peru, as well as the case of Mexico where other types of laws and regulations aim to achieve the same objectives of solidifying incentives for fiscal discipline at all levels of government. Fiscal responsibility laws are found to be useful in some cases, although the experience is not long enough to be certain, but they are clearly not necessary in every case, nor always sufficient to assure fiscal stability.
This paper - a product of the Economic Policy Sector Unit, Latin America and the Caribbean Region - is part of a larger effort in the region to understand the dynamics of fiscal policy in a federal context.
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