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An alert on the recent fall of the fiscal reaction in Brazil

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  • Campos, Eduardo Lima
  • Cysne, Rubens Penha

Abstract

Recent evaluations of how the Brazilian government’s primary surplus reacts to the evolution of the debt to GDP ratio convey two important (and worrisome) messages: first, the reaction function has been almost steadily decreasing since 2012. Second, it has turned from positive to negative figures as of October of 2017. With effective real interest rates (over the net government debt) higher than prospects of GDP growth, negative figures for the fiscal reaction function mean a non-sustainable debt trajectory. Significant fiscal adjustments will have to be made in the short run.

Suggested Citation

  • Campos, Eduardo Lima & Cysne, Rubens Penha, 2018. "An alert on the recent fall of the fiscal reaction in Brazil," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 799, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    • Handle: RePEc:fgv:epgewp:799
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    JEL classification:

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

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