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Abstract
Fiscal policy in Latin America has been procyclical for many decades. The easy availability of funds during periods of economic expansion, against a backdrop of major social and infrastructure needs, has repeatedly prompted rapid increases in government expenditure. But spending often has had to be cut sharply later when economies have fallen into recession or faced a sudden stop of capital inflows. This procyclicality has been empirically documented in a growing literature that started in the late 1990s with Gavin and Perotti (1997). With very few exceptions, studies have found evidence of procyclical fiscal policy in developing and emerging market economies, and especially in Latin America.
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