Indicators of fiscal policy: Design and applications for Chile

Latin America’s economics are prone to continual shocks, of both external and internal origin, giving rise to a marked variability in their growth rates. In order to reduce this volatility, it is necessary therefore to establish stabilization mechanisms, including in particular the instruments of fiscal policy. The economies’ increasing variability is prompting the development of fiscal norms that in-corporate anti-cyclical features. Such rules arc based on the setting of medium-term public spending goals that are consistent with the economy’s growth trend and level of public debt but are independent of the cyclical component of the level of activity. In such a system, tax revenues would perform the traditional function of stabilizers of economic fluctuations.