Institutional instruments of anticyclical fiscal policy of Chile

Abstract

The recent slump in commodity prices put resource rich countries in the spot again. The end of a ten year commodity boom put to test the resilience of countries’ financial position and urged the governments of these economies to adjust their fiscal policy to a new long term reality of low prices for commodities. The overwhelming majority of these countries are now facing the problem of finding financial resources to meet their social security obligations, stimulate business activity and offset the outflow of foreign investment by increasing government spending. For this purpose a strong institutional and legislative framework is required to ensure that government spending plays an anticyclical role. In this article we put Chile as an example of a country that managed to lay grounds for a solid fiscal policy with independent advisory institutions and a transparent deci-sion-making process. The overview tackles the issues of fiscal rule, Sovereign Wealth Fund management as well as the results of Chilean fiscal policy during the recent crisis.