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Copenhagen Consensus Center

Copenhagen Consensus Latin America: Fiscal Problems

Assessment Paper

By Miguel Braun

The working paper used by the Expert Panel is available for download here, the finalized paper has been published in the Latin American Development Priorities: Cost and Benefits book by Cambridge University Press. 

Short Summary

Despite  recent  improvements  in  fiscal  solvency,  Latin  America  still  faces  serious challenges  in  this  area.  Structural balance  estimates  show  that  the  region  is  still vulnerable  to  adverse  shocks,  and  could  benefit  from  reforms  to improve  solvency, reduce procyclicality and improve efficiency and equity of public spending and taxes. In this paper the author proposes  and  attempts  to  quantify  the  impact  of  reforms  based  on  recent economic  literature.  The  proposals include  improving  debt  management  by  using contingent  debt  instruments,  improving  solvency  and  reducing procyclicality  by implementing  effective  fiscal  rules,  creating  a  regional  policy  evaluation  office  and reforming tax systems to eliminate distortionary taxes and replace corporation taxes with personal income taxes.