Cover -- Title Page -- Contents -- Latin American Development Forum Series -- Other Titles in the Latin American Development Forum Series -- About the Contributors -- Acknowledgments -- Acronyms and Abbreviations -- 1 Overview: Fiscal Policy, Economic Fluctuations, and Growth -- I. Introduction -- II. Are Latin America's Old Fiscal Problems Over? -- III. Fiscal Policy and Macroeconomic Volatility: Dealing with the Procyclical Bias -- Effects and Determinants of Discretionary Fiscal Policies -- The Size and Role of Automatic Stabilizers -- Policies and Institutions to Deal with Procyclicality -- Procyclical Fiscal Policies and Fiscal Federalism -- IV. Fiscal Policy and Growth: Overcoming the Anti-Investment Bias -- The Anti-Investment Bias: Where Does It Come From?10 -- Dealing with the Anti-Investment Bias -- The selective approach -- Using fiscal targets and rules that remove the bias against investment -- Improving Investment Decisions -- Investment agencies -- Fiscal information -- Rethinking fiscal strategies -- V. Summing Up -- Notes -- References -- PART 1 Procyclical Fiscal Policy and Volatility -- 2 Fiscal Discipline, Volatility, and Growth -- I. Introduction: The Impact of Fiscal Policy on Macroeconomic Performance -- II. Fiscal Policy Biases and the Need for Discipline -- Volatile Fiscal Policy -- Procyclical Fiscal Policy -- Excessive Deficits -- III. Characterizing Fiscal Policy -- IV. The Effects of Institutions and Restrictions on Fiscal Policy -- Review of the Literature -- The Effects of Institutions and Political Constraints on Policy: Empirical Results -- Volatility of discretionary fiscal policy -- What affects policy persistence? -- What affects policy elasticity? -- V. The Macroeconomic Consequences of Different Fiscal Policy Institutions -- VI. Policy Implications: How to Restrict Fiscal Policy.

What Do We Mean by Restrictions? -- Two Lessons from the Recent EMU Experience -- The need to establish transparent goals -- The trade-off between flexibility and discipline -- Explicit versus Implicit Constraints -- Notes -- References -- 3 The Size and Effectiveness of Automatic Fiscal Stabilizers in Latin America -- I. Introduction -- II. The Size of Automatic Revenue Stabilizers in Latin America -- III. The Model Economy -- Optimizing Households -- Spenders -- Firms -- Government and Tax Structure -- Resource Constraints -- IV. Steady-State, Calibration, and Solution Methods -- Parameter Values and Steady-State Structure -- Solution Method -- V. Simulation Results -- Cyclical Properties -- Automatic Stabilizers in the LAC Region -- Automatic revenue stabilizers -- The stabilizing role of government size -- VI. Concluding Remarks -- Notes -- References -- 4 Fiscal Federalism and Procyclical Spending: The Cases of Argentina and Brazil -- I. Introduction -- II. Why Is Spending Procyclical? -- III. Fiscal Federalism Specificities: Argentina and Brazil -- Argentina6 -- Brazil -- IV. The Evidence: Procyclicality of Spending of Subnational Governments in Argentina and Brazil -- Argentina -- Testing the Sources of Procyclicality -- Brazil -- V. Conclusions -- Notes -- References -- 5 Fiscal Rules and Procyclicality -- I. Introduction -- II. Why Care About Fiscal Procyclicality? -- Excess Macroeconomic Volatility in Latin America Reduces Growth and is Especially Harmful for the Poor -- Procyclical Fiscal Policies May Exacerbate Macrovolatility in Latin America -- Procyclical Fiscal Policies Add Policy Risk to the Income Risk of the Poor -- Procyclical Biases May Lead to Deficit and Anti-Investment Biases in Fiscal Policies -- III. What Are the Causes of the Procyclical Bias of Fiscal Policies in Latin America? -- IV. Why Fiscal Rules May Help.

V. Conflicts Between Flexibility and Credibility: Toward Fiscal Rules That Reduce the Procyclical and Deficit Biases -- VI. The Experience with Fiscal Rules in Latin America -- The experience with commodity stabilization funds -- The experience with fiscal responsibility and stabilizing transfers laws -- The Chilean structural balance rule -- VII. Conclusions and Policy Implications -- Notes -- References -- PART 2 Fiscal Policy and Growth -- 6 Fiscal Discipline, Public Investment, and Growth -- I. Introduction -- II. Fiscal Adjustment and Public Investment -- III. The Theory and Practice of Fiscal Solvency -- The Arithmetic of Public Sector Solvency -- Public Investment, Growth, and Solvency -- Operations and Maintenance -- Reality Checks -- Discussion -- IV. Final Remarks -- Annex 6.1. Analytical Derivations -- 1. Derivation of Equation (8) -- 2. The Case of Constant Marginal Productivity -- Notes -- References -- 7 Incentives for Public Investment Under Fiscal Rules -- I. Introduction -- II. Fiscal Rules and Public Investment -- The Basic Analytics -- Cash-Balance Rule -- Operating-Balance Rule -- Permanent-Balance Rule -- Implications for Public Debt Financing and Net Revenue Requirements -- Principles of Long-Run Fiscal Policy -- Fiscal Sustainability -- Tax Smoothing -- Intergenerational Equity -- III. Capital Budgeting, Accounting, and Debt Finance -- Determining Debt-Financed Public Investment -- Accounting Principles -- Moral Hazard in Government -- The Scope of Capital Budgets -- IV. Survey of Current Practice -- Fiscal Rules -- Europe and the SGP -- Golden rules -- Public Infrastructure Agencies -- Public-Private Partnerships -- Impacts on Public Investment -- V. Recent Proposals for Reform -- VI. An Alternative Approach to Fiscal Rules -- VII. Conclusion -- Notes -- References.

8 Improving the Stability and Growth Pact Through Proper Accounting of Public Investment -- I. The Pact: Flaws and Reform Options -- II. The Arithmetic of Public Investment -- III. Should Balanced Budget Rules Exclude Net Investment? -- IV. Do Governments Need to Set Up an Investment Agency? -- V. Trying Some Numbers -- VI. Capital Budgets: The Experience of the United States -- VII. Doing This Within the Treaty: Article 104.3 -- VIII. Principles for the Institutional Design of Investment Agencies -- Notes -- References -- 9 Accrual Accounting, Long-Term Fiscal Projections, and Infrastructure Investment -- I. Overview -- II. The Need for a Long-Term View -- III. Traditional Fiscal Indicators -- IV. The Benefits of Accrual Accounting -- V. The Limits of Accrual Accounting -- Valuation of Infrastructure Assets -- Guarantees and Long-Term Purchase Contracts -- The Consolidation of Public Enterprises -- Uncertainty and Bias -- VI. Long-Term Fiscal Projections -- Annex 9.1. Solvency, Accounting, and Cash-Flow Projections -- Notes -- References -- 10 Growth and Fiscal Effects of Infrastructure Investment in Brazil -- I. Introduction -- II. Some Basic Stylized Facts -- III. The Growth Impact of Infrastructure -- IV. An Experiment on Cash Flow and Solvency -- V. Conclusion -- Annex 10.1 Dynamic System of Section III -- Notes -- References -- Index -- Back Cover.