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Sustainability of Brazilian public debt: a structural break analysis

Author

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  • Eduardo Lima Campos
  • Rubens Penha Cysne

Abstract

Purpose - The objective of this work is to investigate the existence of structural breaks in multicointegration models estimated for Brazilian fiscal variables and to identify their effects on the sustainability or not of this country`s fiscal policy between December 1997 and June 2018. Design/methodology/approach - The authors apply the econometric multicointegration method, in order to analyze long-term relationships between accumulated revenue and expenses of Brazilian central government and the stock of its debt, incorporating structural breaks, over the study period. Findings - The unsustainability of the debt/GDP ratio is found here, as in a previous work, but now considering a structural break. As one of the contributions, the present work makes it possible to identify the date as of which Brazilian fiscal policy may have become unsustainable: May 2014. Originality/value - The work points out the worsening of Brazilian fiscal situation as of 2014. The authors adapted original methodologies both in model specification and in the stationarity test used. The estimated parameters before and after structural break allow for identifying changes in fiscal variables that may have led to unsustainability, thus providing possible guidance for fiscal policy.

Suggested Citation

  • Eduardo Lima Campos & Rubens Penha Cysne, 2020. "Sustainability of Brazilian public debt: a structural break analysis," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 17(3), pages 645-663, November.
    • Handle: RePEc:eme:ijoemp:ijoem-11-2019-0936
    DOI: 10.1108/IJOEM-11-2019-0936
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    More about this item

    Keywords

    Public debt; Debt sustainability; Multicointegration; Structural breaks; E50; H30; H60;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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