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Unformatted text preview: es is relatively more counter‐cyclical in this group of countries. In contrast, LAC 7 countries exhibit weaker counter‐cyclical automatic stabilizers in the area of government expenditures, but stronger and more pro‐cyclical automatic revenue and primary balance stabilizers. Overall, considering both discretionary and automatic changes in primary balances (jointly), LAC7 countries exhibit a less pro‐cyclical behavior. 127 The results in Table 1 do not change significantly when we also control for changes in export‐weighted commodity prices. 128 In our framework, booms (downturns) are defined as periods in which the growth of observed output is above (below) that of its cyclically‐adjusted structural component. 129 LAC 7 countries include Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela. Rest of LAC includes Bolivia, Costa Rica, Ecuador, Guatemala, Honduras, El Salvador, Nicaragua Panama, Paraguay, and Uruguay. 100 Fiscal space for financing stimulus packages varies considerably across LAC9 countries We assess the extent to which LAC countries are in a position to implement fiscal stimulus packages without jeopardizing their fiscal sustainability and macroeconomic stability.130 To that end, we construct a composite index of “lack of space for fiscal stimulus” which depends on the following six factors: levels of public debt, primary deficits, commodity dependence, expenditure rigidity, access to finance and borrowing costs.131 We combine these six dimensions into an aggregate index.132 Higher scores indicate higher constraints for the financing of fiscal stimulus packages. As shown in Figure 5, Ecuador and Venezuela display the largest constraints for financing fiscal stimulus packages, while Chile displays by far the lowest constraints. Among the rest of the countries in our sample, Brazil and Colombia appear to be slightly better positioned than Peru, Mexico and Argentina. In most countries, the most important barrier to countries’ ability to implement stimulus packages is related to their limited access to domestic and external financing. The main exceptions are Chile, for which commodity dependence is the main factor, Brazil, for which the existing debt burden is the dominant factor, and Mexico, where high primary deficits are the main constraint, at least relative to other countries in the region. Some desirable traits of counter‐cyclical stimulus packages As shown above, the room for implementing counter‐cyclical fiscal policies varies considerably across the region. However, some key characteristics of fiscal stimulus measures are likely to be considered desirable by all countries.133 First, given the hard‐gained achievements of the region in the area of debt‐
management, most countries are likely to place a large value on sustainability considerations. In practice, given the various constraints described above, this calls for exercising caution in terms of the size of potential stimulus packages. In terms of their composition, it calls for an emphasis on measures that could easily be s...
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