A cycle-adjusted fiscal rule for sustainable and more equitable growth in Argentina

Córdoba

Congreso; XLVII Jornadas Internacionales de Finanzas Públicas; 2014

Fac. Cs. Es. - UNC

We seek to identify the most promising fiscal strategy to boost long-term growth in Argentina and quantify its effects. To this end, we update a growth diagnostics for Argentina and corroborate that low appropriabilty of social returnsand insufficient public infrastructure are key constraints to private investment; and low appropriabilityalso stands out among the key constraints to productivity-enhancing activities. Because low appropriability is largely rooted in macroeconomic volatility, we argue that a cycleadjusted fiscal rule is one of the most promising fiscal reforms the country could implement to tackle this problem and we discuss the specific design features that such a rule could include. Then, we construct a model reflecting the stylized facts of the Argentine Republic?s fiscal federalism structure to assess the effect that a cycle-adjusted fiscal rule, in different variants, would have on the volatility of key macro variables. We find that the rule, indeed,would reduce macroeconomic volatility meaningfully, thereby contributing to improve appropriability and long-term growth.