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Brazil's Fiscal Stance during 1995-2005: The Effect of Indebtedness on Fiscal Policy Over the Business Cycle


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  • Luiz de Mello
  • Diego Moccero


Brazil's fiscal adjustment since the floating of the real in 1999 has been impressive, even in periods of lacklustre growth. This suggests a remarkable fiscal effort to ensure public debt sustainability. To better gauge the magnitude of this adjustment effort, this paper applies the methodology used by the OECD Secretariat to distinguish changes in the fiscal stance that are due to policy action from those that are related to the automatic stabilisers built into the tax code, the social security system and unemployment insurance. The paper's main finding is that discretionary action tends to be essentially pro-cyclical in downturns, underscoring the presence of a strong "sustainability motive" in the conduct of Brazilian fiscal policy. Spending on mandatory items, such as personnel, are pro-cyclical in upturns too, which can create a "ratcheting-up" effect on government spending over time, an issue that will have to be addressed to improve the quality of on-going fiscal adjustment. An increase in the debt-to-GDP ratio by 1 percentage point is associated with a decrease in discretionary federal spending by 0.33 percentage point during 1997-2005. This responsiveness appears to have become stronger after the floating of the real in 1999. This Working Paper relates to the 2005 OECD Economic Survey of Brazil ( Orientation de la politique budgétaire au Brésil sur la période 1995-2005 : L'effet de l'endettement L'ajustement budgétaire du Brésil depuis l'adoption d'un régime de taux de change flottant en 1999 a été impressionnant, malgré la morosité de la croissance pendant ces années. Cela suggère un remarquable effort budgétaire pour assurer la soutenabilité de la dette publique. Pour mieux évaluer l'ampleur de cet effort d'ajustement, ce document applique la méthodologie utilisée par le Secrétariat de l'OCDE pour distinguer les changements dans la position budgétaire liés à l'orientation de la politique discrétionnaire de ceux liés aux stabilisateurs automatiques du code des impôts, du système de sécurité sociale et de l'assurance chômage. Les calculs sont utilisés pour estimer la sensibilité des initiatives de la politique discrétionnaire à un changement de la dette publique. La politique budgétaire discrétionnaire est essentiellemen procyclique dans les phases de basses conjonctures, ceci est la principale conclusion rapportée dans ce document. Cela souligne que la conduite de la politique budgétaire Brésilienne est fortement motivée par la soutenabilité de la dette publique. Les catégories de dépenses obligatoires, comme les dépenses en personnel,sont également procycliques dans les périodes de reprise. Ceci crée un effet rattrapage en «dents de scie» des dépenses publiques, une question qui devra être abordée pour améliorer la qualité de l'ajustement budgétaire progressif. Une augmentation du ratio de la dette publique sur le PIB de 1% est associé à une baisse de 0.33 point de pourcentage dans les dépenses discrétionnaires au niveau fédéral. Cette réponse paraît s'être renforcée après l'adoption d'un régime de taux de change flottant en 1999. Ce Document de travail se rapporte à l'Étude économique de l'OCDE du Brésil, 2005 (

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 485.

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Date of creation: 22 May 2006
Date of revision:
Handle: RePEc:oec:ecoaaa:485-en

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Keywords: fiscal policy; business cycles; debt sustainability; Brazil; soutenabilité de dette; cycle des affaires; politique budgétaire; Brésil;

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Cited by:
  1. Hans Fricke & Bernd Süssmuth, 2011. "Growth and Volatility of Tax Revenues in Latin America," CESifo Working Paper Series 3312, CESifo Group Munich.
  2. Christian Daude & Ángel Melguizo & Alejandro Neut, 2010. "Fiscal Policy in Latin America: Countercyclical and Sustainable at Last?," OECD Development Centre Working Papers 291, OECD Publishing.
  3. Fricke, Hans & Süssmuth, Bernd, 2013. "Growth and volatility of tax revenues in Latin America," Working Papers 124, University of Leipzig, Faculty of Economics and Management Science.
  4. Kei Kawakami & Rafael Romeu, 2011. "Identifying Fiscal Policy Transmission in Stochastic Debt Forecasts," IMF Working Papers 11/107, International Monetary Fund.
  5. Daude, Christian & Melguizo, Ángel & Neut, Alejandro, 2010. "Fiscal policy in Latin America: better after all?," Economics Discussion Papers 2010-24, Kiel Institute for the World Economy.
  6. Jeromin Zettelmeyer & Ivanna Vladkova Hollar, 2008. "Fiscal Positions in Latin America," IMF Working Papers 08/137, International Monetary Fund.


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