Economic and Fiscal Policy in Latin America

Nearly three decades after the fact, a substantial body of literature has emerged on the economic and political turbulence that rocked Latin America in the context of the 1982 debt crisis. Amid the immediate challenges of stabilizing the economy and restarting growth, policy makers sought to define a new model of development, thereby kicking off a slew of policy prognoses and prescriptions. Despite differences in methodology and modes of inquiry, political scientists, policy makers, and economists have posed the same basic questions: What are the most important variables for spurring high sustainable growth? What combination of monetary and fiscal policies might best foster development, broadly defined?

Although economists have focused mainly on the determinants of economic growth, political scientists have sought to understand the political and institutional foundations of reform. Because of this difference, two parallel programs of research have dominated the study of Latin American development after the so-called lost decade of the 1980s. The first draws on neoclassical analyses of economic growth that date back to the 1950s and 1960s, an approach that stresses the importance of technological innovation, capital accumulation, and getting prices right. The second program posits the prime importance of institutions for igniting economic growth and rests on the work of Douglass North, which maintains that institutions encompass both formal rules and informal conventions that shape incentives for social, political, and economic behavior.¹ From this main point of departure, political science literature on institutional reform in Latin America has covered the spectrum of possible variables, from the executive to the legislature, political parties, civil society, and the organizational entities that constitute the state.

In this review essay, we straddle these two traditions to assess recent works that fall under the rubric of economic policy making in Latin America. At the same time, we highlight other publications that pertain to the political economy of fiscal policy. Although fiscal policy received top billing on the list of reforms that came under the rubric of the Washington Consensus, and was a central pillar of the adjustment programs that the International Monetary Fund and the World Bank pushed, this fundamental variable has, until recently, received comparatively short shrift in political economy literature.² Beginning with the work of a first group of scholars on the broader issue of Latin American growth, its lackluster performance since a wave of reforms in the 1990s, and the impediments associated with that underperformance, we focus on the various dimensions of fiscal policy, including the domestic politics of tax reform, legislative coalition building, and the potential for reaching viable fiscal bargains.

Economic Policy Making: Half-Hearted Reforms and the Paucity of Growth

The collection of essays edited by Fajnzylber, Guasch, and López revisits the record of Latin American growth since the 1960s. As a whole, this economically oriented volume argues that the region has been unable...