Towards fiscal coordination in South America, a proposal based on inter-country fiscal multipliers

MATÍAS TORCHINSKY LANDAU

Lille

Conferencia; AFEP-IIPPE International Conference 2019; 2019

Association Française d'Économie Politique (AFEP), International Initiative for Promoting Political Economy (IIPPE)

Fiscal multipliers are generally estimated at a national level, considering trade flows but without explicitly accounting for their impact on other countries income. In a context of growing economic integration, particularly at a regional level, these effects are sizeable and should not be ignored. Moreover, they can be actively integrated into a coordinated fiscal policy between countries, leading to strategies with lower costs for fiscal and external accounts than isolated actions.Based on the methodology developed by Cingolani, Garbellini and Wirkierman (2013) and the inter-country input-output (ICIO) tables published by the OECD, a matrix of multi-country income multipliers is estimated for five South American nations for the period 2005-2015. Then a linear program is devised to calculate the requirements for a coordinated fiscal expansion (where each country participates, although not in the same proportion) in order to achieve a target rate of growth for all countries in the region. This policy proves to outperform the implementation of isolated actions by each government, considering both its fiscal and external cost.