Fiscal Policy for Stable and Equitable Growth in Latin America

Abstract

The resumption of economic growth in Latin America is predicated on the successful restoration of fiscal discipline and stabilization. In restoring fiscal discipline, the mix of policy instruments should aim at maximizing efficiency in the use of domestic and foreign resources. Poverty alleviation in Latin America is not likely to be achieved, in the near future, by economic growth. Policy should promote a more equitable distribution of income. While fiscal policy can play an important role in this process, it is important to realize that the current high domestic inflation in many Latin American countries implies that expanding social programs has high social costs. Fiscal policy should aim at increasing the income share for the poor by making the tax system more efficient and by reforming the existing social programs to make them more effectively targeted toward the poor.