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The behavior of the Brazilian federal domestic debt

  • Viviane Luporini

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    This paper analyses the sustainability of the Brazilian federal fiscal policy by examining the responses of the government budget surplus to variations of the debt-GDP ratio. The approach to assess sustainability, originally proposed by Bohn (1998), circumvents the problems present in traditional sustainability tests based on statistical properties of the debt, such as unit roots and cointegration. In particular, the regressions proposed do not require restrictive assumptions about real interest rates, the structure of the government debt or the agents’ behavior towards risk. Using annual data from 1966 to 2000, the results have indicated that the government surplus has not systematically responded to changes in the debt-income level previously observed, indicating that the fiscal policy cannot be considered sustainable during the period analyzed. Moreover, it is shown that the debt-GDP ratio does not exhibit a mean-reverting tendency even when one controls for cyclical variations in income and government expenditures, further indicating a non-sustainable path for the fiscal policy.

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    File URL: http://www.cedeplar.ufmg.br/pesquisas/td/TD%20161.pdf
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    Paper provided by Cedeplar, Universidade Federal de Minas Gerais in its series Textos para Discussão Cedeplar-UFMG with number td161.

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    Length: 16 pages
    Date of creation: 2001
    Date of revision:
    Handle: RePEc:cdp:texdis:td161
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    1. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-19, September.
    2. Henning Bohn, 1991. "The sustainability of budget deficits with lump-sum and with income-based taxation," Proceedings, Federal Reserve Bank of Cleveland, pages 580-612.
    3. Haug, Alfred A, 1991. "Cointegration and Government Borrowing Constraints: Evidence for the United States," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(1), pages 97-101, January.
    4. Ahmed, S. & Rogers, J.H., 1993. "Government Budget Deficits and Trade Deficits: Are Present Value Constraints Satisfied in Long-Term Data?," Papers 5-93-6, Pennsylvania State - Department of Economics.
    5. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
    6. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 429-45, July.
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