IDEAS home Printed from https://ideas.repec.org/p/fgv/epgewp/798.html
   My bibliography  Save this paper

A time-varying fiscal reaction function for Brazil

Author

Listed:
  • Campos, Eduardo Lima
  • Cysne, Rubens Penha

Abstract

This paper evaluates the sustainability of public debt in Brazil using monthly data from January 2003 to June 2016, based on the estimation of fiscal reaction functions with time-varying coefficients. Three estimation methods are considered: Kalman filter, penalized spline smoothing and time-varying cointegration. Besides indicating that the reaction of the primary deficit to variations in the debt/GDP ratio declined over most of the period analyzed, all these methods lead to the conclusion that the Brazilian public debt, given the parameters then in force, reached an unsustainable trajectory in the last years of the sample.

Suggested Citation

  • Campos, Eduardo Lima & Cysne, Rubens Penha, 2018. "A time-varying fiscal reaction function for Brazil," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 798, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
  • Handle: RePEc:fgv:epgewp:798
    as

    Download full text from publisher

    File URL: http://bibliotecadigital.fgv.br/dspace/bitstream/10438/24712/1/a-time-varying-fiscal-reaction-function-for-brazil.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Henning Bohn, 1998. "The Behavior of U. S. Public Debt and Deficits," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 949-963.
    2. Adrian Penalver & Gregory Thwaites, 2006. "Fiscal rules for debt sustainability in emerging markets: the impact of volatility and default risk," Bank of England working papers 307, Bank of England.
    3. Mr. Olumuyiwa S Adedeji & Mr. Oral Williams, 2007. "Fiscal Reaction Functions in the CFA Zone: An Analytical Perspective," IMF Working Papers 2007/232, International Monetary Fund.
    4. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    5. Merih Uctum & Thom Thurston & Remzi Uctum, 2006. "Public Debt, the Unit Root Hypothesis and Structural Breaks: A Multi‐Country Analysis," Economica, London School of Economics and Political Science, vol. 73(289), pages 129-156, February.
    6. Bierens, Herman J. & Martins, Luis F., 2010. "Time-Varying Cointegration," Econometric Theory, Cambridge University Press, vol. 26(5), pages 1453-1490, October.
    7. Nina Budina & Sweder van Wijnbergen, 2008. "Quantitative Approaches to Fiscal Sustainability Analysis: A Case Study of Turkey since the Crisis of 2001," The World Bank Economic Review, World Bank Group, vol. 23(1), pages 119-140, November.
    8. Joonhyuk Song, 2009. "An Empirical Evaluation of Fiscal Sustainability Near and Far," Korean Economic Review, Korean Economic Association, vol. 25, pages 133-164.
    9. Luiz de Mello, 2008. "Estimating a fiscal reaction function: the case of debt sustainability in Brazil," Applied Economics, Taylor & Francis Journals, vol. 40(3), pages 271-284.
    10. Rocha, Fabiana, 1997. "Long-Run Limits on the Brazilian Government Debt," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 51(4), October.
    11. 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 808-819, September.
    12. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2001. "Is the Price Level Determined by the Needs of Fiscal Solvency?," American Economic Review, American Economic Association, vol. 91(5), pages 1221-1238, December.
    13. Cyrus MUTUKU, 2015. "Assessing Fiscal Policy Cyclicality and Sustainability: A Fiscal Reaction Function for Kenya," Journal of Economics Library, KSP Journals, vol. 2(3), pages 173-191, September.
    14. Park, Joon Y. & Hahn, Sang B., 1999. "Cointegrating Regressions With Time Varying Coefficients," Econometric Theory, Cambridge University Press, vol. 15(5), pages 664-703, October.
    15. Lima, Luiz Renato Regis de Oliveira & Simonassi, Andrei Gomes, 2005. "Dinâmica não-linear e sustentabilidade da dívida pública brasileira," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 587, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    16. Eva Cantoni, 2002. "Degrees-of-freedom tests for smoothing splines," Biometrika, Biometrika Trust, vol. 89(2), pages 251-263, June.
    17. Balázs Égert, 2014. "Fiscal policy reaction to the cycle in the OECD: pro- or counter-cyclical?," Mondes en développement, De Boeck Université, vol. 0(3), pages 35-52.
    18. Hirotugu Akaike, 1969. "Fitting autoregressive models for prediction," Annals of the Institute of Statistical Mathematics, Springer;The Institute of Statistical Mathematics, vol. 21(1), pages 243-247, December.
    19. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    20. Afonso, António & Hauptmeier, Sebastian, 2009. "Fiscal behaviour in the European Union: rules, fiscal decentralization and government indebtedness," Working Paper Series 1054, European Central Bank.
    21. Philippe Burger & Marina Marinkov, 2012. "Fiscal rules and regime-dependent fiscal reaction functions: The South African case," OECD Journal on Budgeting, OECD Publishing, vol. 12(1), pages 1-29.
    22. Bettina Fincke & Alfred Greiner, 2012. "How to assess debt sustainability? Some theory and empirical evidence for selected euro area countries," Applied Economics, Taylor & Francis Journals, vol. 44(28), pages 3717-3724, October.
    23. Trehan, Bharat & Walsh, Carl E, 1991. "Testing Intertemporal Budget Constraints: Theory and Applications to U.S. Federal Budget and Current Account Deficits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 206-223, May.
    24. Issler, Joao Victor & Lima, Luiz Renato, 2000. "Public debt sustainability and endogenous seigniorage in Brazil: time-series evidence from 1947-1992," Journal of Development Economics, Elsevier, vol. 62(1), pages 131-147, June.
    25. Greiner, Alfred & Kauermann, Goran, 2007. "Sustainability of US public debt: Estimating smoothing spline regressions," Economic Modelling, Elsevier, vol. 24(2), pages 350-364, March.
    26. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
    27. Marco A.F.H. Cavalcanti & Napoleão L. C. Silva, 2010. "Dívida Pública, Política Fiscal e Nível de Atividade: Uma Abordagem Var Para o Brasil no Período 1995-2008," Discussion Papers 1491, Instituto de Pesquisa Econômica Aplicada - IPEA.
    28. Bohn, Henning, 2007. "Are stationarity and cointegration restrictions really necessary for the intertemporal budget constraint?," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1837-1847, October.
    29. Alessandro Turrini, 2008. "Fiscal policy and the cycle in the Euro Area: The role of government revenue and expenditure," European Economy - Economic Papers 2008 - 2015 323, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    30. Nguyen, Pascal, 2007. "Macroeconomic factors and Japan's industry risk," Journal of Multinational Financial Management, Elsevier, vol. 17(2), pages 173-185, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bajo-Rubio, Oscar & Díaz-Roldán, Carmen & Esteve, Vicente, 2014. "Deficit sustainability, and monetary versus fiscal dominance: The case of Spain, 1850–2000," Journal of Policy Modeling, Elsevier, vol. 36(5), pages 924-937.
    2. Aldama, Pierre & Creel, Jérôme, 2019. "Fiscal policy in the US: Sustainable after all?," Economic Modelling, Elsevier, vol. 81(C), pages 471-479.
    3. Markus Reischmann, 2016. "Empirische Studien zu Staatsverschuldung und fiskalischen Transferzahlungen," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 63.
    4. Ko, Jun-Hyung & Morita, Hiroshi, 2015. "Fiscal sustainability and regime shifts in Japan," Economic Modelling, Elsevier, vol. 46(C), pages 364-375.
    5. Niklas Potrafke & Markus Reischmann, 2015. "Fiscal Transfers and Fiscal Sustainability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(5), pages 975-1005, August.
    6. Byrne, Joseph P. & Fiess, Norbert & MacDonald, Ronald, 2011. "The global dimension to fiscal sustainability," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 137-150, June.
    7. Truong Nguyen, 2013. "Estimating India's Fiscal Reaction Function," ASARC Working Papers 2013-05, The Australian National University, Australia South Asia Research Centre.
    8. Reicher, Claire, 2014. "Systematic fiscal policy and macroeconomic performance: A critical overview of the literature," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 8, pages 1-37.
    9. Park, Danbee & Sung, Taeyoon, 2020. "Foreign debt, global liquidity, and fiscal sustainability," Japan and the World Economy, Elsevier, vol. 54(C).
    10. P.S. Renjith & K.R. Shanmugam, 2018. "Sustainable Debt Policies of Indian State Governments," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 12(2), pages 224-243, May.
    11. Paniagua, Jordi & Sapena, Juan & Tamarit, Cecilio, 2017. "Fiscal sustainability in EMU countries: A continued fiscal commitment?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 85-97.
    12. Cysne, Rubens Penha & Campos, Eduardo Lima, 2019. "Sustainability of the Brazilian public pebt an analysis using multicointegration," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 805, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    13. Juan Carlos Cuestas & Luis A. Gil-Alana & Laura Sauci, 2020. "Public finances in the EU-27: Are they sustainable?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(1), pages 181-204, February.
    14. Andric, Vladimir & Arsic, Milojko & Mladenovic, Zorica, 2016. "The Dynamics of Public Debt in Serbia - A Nonlinear Analysis," EconStor Preprints 144713, ZBW - Leibniz Information Centre for Economics.
    15. Vassilis Monastiriotis & Cigdem Borke Tunali, 2020. "The Sustainability of External Imbalances in the European Periphery," Open Economies Review, Springer, vol. 31(2), pages 273-294, April.
    16. Gabriella Deborah Legrenzi & Costas Milas, 2010. "Spend-and-Tax Adjustments and the Sustainability of the Government's Intertemporal Budget Constraint," CESifo Working Paper Series 2926, CESifo.
    17. Christou, Christina & Gupta, Rangan & Nyakabawo, Wendy & Wohar, Mark E., 2018. "Do house prices hedge inflation in the US? A quantile cointegration approach," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 15-26.
    18. António Afonso & Christophe Rault, 2010. "What do we really know about fiscal sustainability in the EU? A panel data diagnostic," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(4), pages 731-755, January.
    19. Miller, Stephen M. & Martins, Luis Filipe & Gupta, Rangan, 2019. "A Time-Varying Approach Of The Us Welfare Cost Of Inflation," Macroeconomic Dynamics, Cambridge University Press, vol. 23(2), pages 775-797, March.
    20. Camarero, Mariam & Carrion-i-Silvestre, Josep Lluís & Tamarit, Cecilio, 2013. "Global imbalances and the intertemporal external budget constraint: A multicointegration approach," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5357-5372.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fgv:epgewp:798. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/epgvfbr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Núcleo de Computação da FGV EPGE (email available below). General contact details of provider: https://edirc.repec.org/data/epgvfbr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.