Although Latin America countries have been relying on fiscal rules, there is ample evidence that incumbents...

Although Latin America countries have been relying on fiscal rules, there is ample evidence that incumbents engage in what we call political budget cycles. That is, increasing fiscal deficit to boost the economy before elections in order to appear competent and therefore increase the chances of being re-elected.

Do you think the legislature has a role? Which fiscal rules do you propose to eliminate the political budget cycles in Latin America?

Hints: 1) you can review the US states fiscal rules. 2) fiscal rules A and B may not be as effective, but together A and B may be very effective.

Expert Solution

Introduction

If the fiscal policy of a country expands too much, meaning that the aggregate expenditure in the country rises too much, it leads to a situation wherein the demand for goods and services nay be relatively very high, and result in a situation that could lead to long term implications for a country.

One of the top reasons, why the Federal Reserve in the United States was left without political control is to avoid any political decision to alter the flow of money in the economy.

However, it is often seen that politicians tend to use Fiscal Policy as a tool to engage voters and this should be dealt with in the best possible way and manner.

Case Specifics: -

Indeed, legislature must have a key role to play in stopping this from happening. Political gains from elections often causes politicians to take the extra mile while going for budgets in years where elections are near.

Thus, to avoid this, numerous fiscal policy rules can be applied to Latin America. These include the likes of using a 2-year roadmap for budgets wherein any alterations would require two third majority in the last year. This would help in avoiding any mischief on part of the government in the last years so as to maintain profitability.

Further, committees can be set up to analyse whether a change in fiscal policy is admissible or not. Legislature would add the regulators role to the fiscal policy and close monitoring would ensure that any unethical or biased relaxations or benefits being extended by politicians can be reviewed in the year of election respectively.

Please feel free to ask your doubts in the comments section.

Rahul Sunny answered 2 years ago

Describe how countries like Latin America , Asia Pacific , Middle East and Africa have been...

Describe how countries like Latin America , Asia Pacific , Middle East and Africa have been impacted by the pandemic.

Why did most countries of Latin America fall into a debt crisis in the early 1980s?...

Why did most countries of Latin America fall into a debt crisis in the early 1980s? Discuss the general problem of a “debt trap” and national dollar capital inflows and outflows. Then discuss 2 general trends of the 1970s and 2 specific trigger events of the 1980s which caused the crisis.

A run for your money Developing countries in Latin America and Asia can borrow for longer...

A run for your money Developing countries in Latin America and Asia can borrow for longer Aug 26th 2010 PERU is not an obvious investment darling. For much of its existence, the country has been in a state of default. As recently as 1990 the inflation rate was 7,500%. Yet in the past few years Peru has persuaded creditors to lend it money for ever-longer periods in its own currency. It issued its first 20-year local-currency bond in 2006; its...

What factors have shaped the growth patterns of Latin America?

What were the effects of Import Substitution Industrialization on most countries of Latin America? Discuss 2...

What were the effects of Import Substitution Industrialization on most countries of Latin America? Discuss 2 benefits to some of the countries.

In the late 1970s, several countries in Latin America, notably Mexico, Brazil, and Argentina had accumulated...

In the late 1970s, several countries in Latin America, notably Mexico, Brazil, and Argentina had accumulated large external debt burdens. A significant share of this debt was denominated in U.S. dollars. The United States pursued contractionary monetary policy from 1979 to 1982, raising dollar interest rates. How would this affect the value of the Latin American currencies relative to the U.S. dollar? How would this affect their external debt in local currency terms? If these countries had wanted to prevent...

The competitive indexes suggest that Latin America has divided by itself into high achieving countries like...

The competitive indexes suggest that Latin America has divided by itself into high achieving countries like Chile and low achieving ones like Nicaragua, because of this blanket policy for economic growth will not work. (Please expand on this)

Why did so many countries experience a decline in poverty rates in Latin America between 2005-2012?

Although Marxism has been tried in a number of countries with varying degrees of success, or...

Although Marxism has been tried in a number of countries with varying degrees of success, or failures, Marx’s ideas continue to have great ideological appeal. What do the various governments that have experimented with Marxism attempted to accomplish? Explain in detail.

Since joining the World Trade Organization (WTO) in 2001 China’s trade ties with Latin America have...

Since joining the World Trade Organization (WTO) in 2001 China’s trade ties with Latin America have expanded rapidly. However, China’s relationship with specific Latin American sub-regions varies greatly. Describe the nature of China’s ties with Latin America and analyze the differences, for example, between comparative advantage in China-South American ties and competitive disadvantage in China-North and Central American ties.

Question