Fiscal Policy in Latin America and the European Union Carlos Vegh Johns Hopkins (SAIS) and Brookings...
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Fiscal Policy in Latin America and the European Union Carlos Vegh Johns Hopkins (SAIS) and Brookings Guillermo Vuletin Brookings Brookings Institution, October 8, 2013
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Transcript of Fiscal Policy in Latin America and the European Union Carlos Vegh Johns Hopkins (SAIS) and Brookings...
Fiscal Policy in Latin America and the European Union
Carlos Vegh Johns Hopkins (SAIS) and Brookings
Guillermo VuletinBrookings
Brookings Institution, October 8, 2013
Graduation in developing countries
Before After
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
Co
rre
lati
on
(G
, G
DP
)
Industrial
Developing
-1.2
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
Co
rre
lati
on
(G
, G
DP
)IndustrialDeveloping
Graduation in Latin American countries
Before (av.=0.30) After (av.=0.17)
Cos
ta R
ica
Chi
le
Bra
zil
Par
agua
y
El S
alva
dor
Arg
entin
a
Ecu
ador
Col
ombi
a
Hon
dura
s
Gua
tem
ala
Nic
arag
ua
Ven
ezue
la
Uru
guay
Mex
ico
Pan
ama
Per
u
Bol
ivia
-1.2
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
Co
rrel
ati
on
(G
, G
DP
)
Col
ombi
a
El S
alva
dor
Pan
ama
Mex
ico
Bra
zil
Bol
ivia
Ecu
ador
Chi
le
Uru
guay
Arg
entin
a
Cos
ta R
ica
Ven
ezue
la
Nic
arag
ua
Gua
tem
ala
Par
agua
y
Per
u
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
Co
rrel
ati
on
(G
, G
DP
)
Who graduated and who did not
-1
-0.75
-0.5
-0.25
0
0.25
0.5
0.75
1
-1 -0.75 -0.5 -0.25 0 0.25 0.5 0.75 1
Corr(G, GDP) 1960-1999
Co
rr(G
, G
DP
) 2
00
0-2
00
9
Still in school
Recent graduate
Back to school
Established graduate
UK
USA
Venezuela
Greece
Chile
Brazil
Portugal
Spain
Ireland
Italy
Peru
Argentina
Uruguay
Greece
14
15
16
17
18
19
20
21
22
23
2420
00
:1
200
1:1
200
2:1
200
3:1
200
4:1
200
5:1
200
6:1
200
7:1
200
8:1
200
9:1
201
0:1
201
1:1
201
2:1
201
3:1
VA
T (
tax
rate
)
-10
-5
0
5
10
15
20
GD
P y
G (
cy
clic
al c
om
po
ne
nts
)
VAT (tax rate) GDP (cyclical component) G (cyclical component)
corr(GDP, G) = 0.56
GDP crisis: duration: 19 quarters (ongoing) intensity: -23.5%
Food for thought
• Many LA governments still fail to save enough in good times … What will happen when the good times end?
• Eurozone countries’ fiscal contraction in bad times: repeating LA’s past mistakes or unavoidable, “market-driven,” adjustment?
• Role of IMF: can lending in bad times be tied to behavior in good times?
