Research Insights: How Do Economic Crises Affect Reforms to Fiscal Rules in Latin America?

Economic crises may favor reforms in fiscal rules, either because they increase the cost of maintaining fiscal imbalances or because these imbalances are behind the origin of the crises. Banking crises would not necessarily explain fiscal reforms in some democratic governments in the region. Financial crises favor reforms the longer the crisis extends over time. If the crisis turns into a sovereign debt crisis, fiscal reforms are much more likely.