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Fiscal Policy and Debt Sustainability

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  • International Monetary Fund
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    Abstract

    We look into Brazil''s public sector accounts during the two administrations of President Fernando Henrique Cardoso: 1995-98 and 1998-2002. We underline the fact that the authorities'' attitude was as important as the pace of the structural reforms for understanding the dynamics of the public sector debt and deficit. The high deficit of the first administration (1995-98) resulted from an expansionary policy, while the adjustment of 1999 is seen as proof of a commitment to fiscal rigor and the need to finance public spending adequately. We present a detailed breakdown of the fiscal outcomes. Two important messages come out: (a) the principal cause of the fiscal deterioration in the first Cardoso administration was the deterioration in the primary balance rather than the increase in the interest payments on public debt; and (b) the fiscal adjustment was entirely on account of increased revenues, as the federal primary public expenditure grew in real terms during the eight years of the two administrations. We consider the outlook for fiscal sustainability, and conclude that, to preserve the hard-won fiscal discipline, the authorities'' recent austere fiscal attitude should be permanently embedded into the fiscal institutions.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/156.

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    Length: 44
    Date of creation: 01 Aug 2004
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    Handle: RePEc:imf:imfwpa:04/156

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    Keywords: Debt sustainability; public debt; central bank; public sector debt; fiscal policy; fiscal adjustment; fiscal institutions; fiscal situation; fiscal sustainability; domestic debt; public sector borrowing; bilateral agreements; fiscal imbalances; debt obligations; budget constraint; public expenditure; tax revenues; public spending; public finances; fiscal statistics; fiscal discipline; primary expenditure; fiscal responsibility; fiscal responsibility law; fiscal crisis; external debt; net debt; primary deficit; fiscal outcomes; federal government budget; fiscal burden; fiscal effort; expenditure growth; fiscal reforms; tax rates; current account deficits; balance of payments; debt stock; domestic public debt; current account; fiscal reform; aggregate demand; fiscal revenues; fiscal austerity; account deficits; structural fiscal; fiscal flows; government budget; fiscal adjustments; fiscal solvency; budget balance; government expenditures; private creditors; official fiscal data; fiscal position; capital expenditures; debt moratorium; fiscal balances; fiscal imbalance; increases in tax rates; fiscal targets; national debt; budget expenditure; fiscal stances; government debt; national budget; foreign currency debt; fiscal policies; tax burden; reserve bank; balance sheet effects; fiscal result; foreign capital; fiscal debt; fiscal stability; fiscal issues; fiscal regime; fiscal policy debt; fiscal indicators; public sector management; fiscal commitments; spending cuts; capital expenditure; private financial institutions; fiscal regimes; fiscal problems; external financing; fiscal control; fiscal consequences; government deficits; fiscal stabilization; repayments; fiscal data; ratio of debt; debt management; fiscal administration; fiscal performance; public deficits; municipal finances; currency debt; taxation; external public debt;

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    1. Afonso S. Bevilaqua & Rogério L. F. Werneck, 1998. "The quality of the federal net debt in Brazil," Textos para discussão 385, Department of Economics PUC-Rio (Brazil).
    2. Rudiger Dornbusch & Sebastian Edwards, 1989. "Macroeconomic Populism in Latin America," NBER Working Papers 2986, National Bureau of Economic Research, Inc.
    3. Fabiana Rocha, 1997. "Long-Run Limits on the Brazilian Government Debt," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 51(4), pages 447-470, October.
    4. Marcio Gomes Pinto Garcia & Tatiana Glindmeier Didier Brandao, 2001. "Taxa de Juros, Risco Cambial e Risco Brasil," Anais do XXIX Encontro Nacional de Economia [Proceedings of the 29th Brazilian Economics Meeting] 031, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    5. David W. Wilcox, 1987. "The substainability of government deficits: implications of the present- value borrowing constraint," Working Paper Series / Economic Activity Section 77, Board of Governors of the Federal Reserve System (U.S.).
    6. Viviane Luporini, 2000. "Sustainability of the Brazilian Fiscal Policy and Central bank Independence," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 54(2), pages 201-226, April.
    7. Kornai, Janos, 1986. "The Soft Budget Constraint," Kyklos, Wiley Blackwell, vol. 39(1), pages 3-30.
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    Cited by:
    1. María Lorena Mari del Cristo & Marta Gómez-Puig, 2014. "Dollarization and the relationship between embi and fundamentals latin american countries," Working Papers 14-05, Asociación Española de Economía y Finanzas Internacionales.
    2. Bachellerie, A. & Couillault, B., 2005. "Public debt sustainability and crises in emerging market countries: a presentation of the concepts and diagnostic tools," Financial Stability Review, Banque de France, issue 6, pages 63-80, June.

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