Budget Rigidity in Latin America and the Caribbean

Policy makers in Latin America and the Caribbean (LAC) often complain that poor fiscal performance in their countries is a result of a high degree of spending rigidity. Despite being a common complaint, the issue has remained largely ignored by the literature because of the lack of adequate measures of rigidity that allow cross-country and time series comparability. This report helps close this gap by introducing a new measure of spending rigidities that can be easily applied to multiple countries. It focuses on the categories of spending that are naturally inflexible—wages, pensions, transfers to subnational governments, and debt service—and separates them into two components: structural and nonstructural. The structural component is determined by economic, demographic, and institutional fundamentals.
[Washington: 2020]

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