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The adjustment of public déficit in the presence a high debt: observations about the Brazilian case

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  • Paulo Nogueira Batista Jr.

Abstract

This article examines the obstacles to public sector adjustment arising from theexistence of a high level of government debt in the form of short-term or floating interestrate obligations. In this context, adjustment programmes that rely exclusively on increasesin taxation and/or reductions in non-financial government expenditures have limited possibilitiesof success. Besides making the budget highly vulnerable to increases in external andinternal interest rates, the size and composition of Brazilian public debt severely restrict theeffectiveness of monetary and exchange-rate policies. The article concludes that under presentcircumstances a successful stabilization programme would have to involve fiscal adjustment,a shock treatment against inflation, and a restructuring of government debt. JEL Classification: H63; E62.

Suggested Citation

  • Paulo Nogueira Batista Jr., 1989. "The adjustment of public déficit in the presence a high debt: observations about the Brazilian case," Brazilian Journal of Political Economy, Center of Political Economy, vol. 9(4), pages 521-537.
    • Handle: RePEc:ekm:repojs:v:9:y:1989:i:4:p:521-537:id:1628
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    More about this item

    Keywords

    Fiscal adjustment; public debt; fiscal policy;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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