Chile’s fiscal rule as social insurance
Well before the Great Recession of 2009 put fiscal policy debates in the front burner commodity-exporting countries had to deal with important fiscal policy dilemmas stemming from revenue volatility and eventual depletion. Chilean policymakers have been at the forefront in this area since adopting a fiscal rule to guide government spending decisions a decade ago. This so-called structural balance rule (SBR) incorporates fluctuations in copper prices—the main source of volatility in fiscal revenues—and was instrumental in saving a large part of the windfall during the commodity boom of 2005–08. When the country went into recession in 2009 however the rule was essentially abandoned as authorities implemented a fiscal expansion beyond that suggested by the SBR.