Armando Castelar Pinheiro

The fiscal impact of privatisation in Latin America

The goal of achieving fiscal balance through privatisation is misplaced because the revenues generated are rarely large or timely enough to bring the budget deficit under control. In Mexico, Argentina, Brazil, and Chile fiscal crisis preceded and encouraged the decision to privatise, but only in Argentina did the revenues from privatisation contribute significantly to fiscal adjustment. The article develops a model, incorporating time preferences and longer term fiscal impacts, which shows that major fiscal benefits can be expected only under rare circumstances. Politicians continue to tout the fiscal benefits of privatisation perhaps to gain support or to signal their commitment to economic reform.