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Refining Macroeconomic Policies to Sustain Growth in Brazil

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  • Annabelle Mourougane

    (OECD)

Abstract

This paper identifies refinements to the macroeconomic framework that will help Brazil to achieve strong performance in a new environment in which population will age at a rapid pace, heavy reliance on oil resources will increase public revenue volatility and uncertainties regarding the external environment are higher, possibly permanently. More specifically, the country needs to pursue fiscal consolidation and remove existing rigidities in the budget process. Over the medium term, moving to a headline budget target would ensure long-term sustainability of public (including social security) accounts, and introducing an expenditure ceiling and removing widespread revenue earmarking would help restrain expenditure. Adopting the proposals to simplify the tax system currently under discussion would improve the business environment, and the government should persevere in its effort to secure political support for them from the states. A pressing challenge is to adapt current transfer mechanisms to ensure regional and inter-generational equity in sharing oil revenues. The establishment of the social fund, which is designed to save part of the oil windfalls and whose investment returns will be allocated to social spending, could help these equity objectives to be reached, so long as it is well designed. The ongoing surge in capital inflows complicates the task of monetary policy and should be addressed through a range of policies, in which fiscal consolidation features prominently. Additional measures such as macro-prudential policies or a temporary tax on short-term capital inflows could also help to prevent the formation of asset price bubbles. This Working Paper relates to the 2011 OECD Economic Review of Brazil 2011 (www.oecd.org/eco/surveys/Brazil). Ajuster les politiques macroéconomiques pour soutenir la croissance Ce papier identifie les changements du cadre macroéconomique qui aideront le Brésil à réaliser des performances robuste dans un nouvel environnement dans lequel la population va vieillir rapidement, une forte dépendance vis-à-vis des revenus pétroliers vont accroître la volatilité des revenus publics et les incertitudes sur l’environnement international seront plus fortes, peut-être de manière durable. Plus précisément, le pays doit poursuivre l'assainissement de ses finances publiques et supprimer les facteurs de rigidité qui caractérisent la procédure budgétaire. Sur le moyen terme, l'adoption d'une cible de solde budgétaire global garantirait la viabilité à long terme des comptes publics (sécurité sociale comprise), tandis qu'un plafonnement des dépenses faciliterait leur maîtrise. La mise en oeuvre des propositions de simplification de la fiscalité actuellement à l'étude améliorerait l'environnement des entreprises, et le gouvernement devrait poursuivre ses efforts afin d'emporter l'adhésion politique des États fédérés à ces propositions. Il est urgent d’adapter les mécanismes actuels de transfert afin d’assurer l’équité régionale et intergénérationnelle en matière de partage des recettes pétrolières. La mise en place d’un fonds social, visant à économiser une partie de la manne pétrolière et dont le retour sur investissement servira à financer les dépenses sociales, pourrait contribuer à réaliser ces objectifs d’équité, pour autant que ce mécanisme soit conçu de façon satisfaisante. L'envolée actuelle des entrées de capitaux complique la tâche aux autorités monétaires et ce problème devrait être traité par divers moyens, au premier rang desquels figure l'assainissement des finances publiques. Des initiatives complémentaires, telles que des mesures macroprudentielles ou une taxe temporaire sur les entrées de capitaux à court terme, pourraient également contribuer à empêcher la formation de bulles des prix des actifs. Ce document de travail se rapporte à l’Étude économique de l’OCDE du Brésil 2011 (www.oecd.org/eco/etudes/Bresil).

Suggested Citation

  • Annabelle Mourougane, 2011. "Refining Macroeconomic Policies to Sustain Growth in Brazil," OECD Economics Department Working Papers 899, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:899-en
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    File URL: http://dx.doi.org/10.1787/5kg3krfd8txv-en
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    References listed on IDEAS

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    1. Simon T Gray, 2011. "Central Bank Balances and Reserve Requirements," IMF Working Papers 11/36, International Monetary Fund.
    2. Olivier Jeanne & Anton Korinek, 2010. "Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach," American Economic Review, American Economic Association, vol. 100(2), pages 403-407, May.
    3. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(2), pages 143-197, June.
    4. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor & Zoega, Gylfi, 1999. "A Mixed Blessing," Macroeconomic Dynamics, Cambridge University Press, vol. 3(02), pages 204-225, June.
    5. 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.
    6. Jeffrey Frankel, 2013. "A Solution to Fiscal Procyclicality: The Structural Budget Institutions Pioneered by Chile," Central Banking, Analysis, and Economic Policies Book Series,in: Luis Felipe Céspedes & Jordi Galí (ed.), Fiscal Policy and Macroeconomic Performance, edition 1, volume 17, chapter 9, pages 323-391 Central Bank of Chile.
    7. Nicolas Magud & Carmen Reinhart & Kenneth Rogoff, 2005. "Capital Controls: Myth and Reality A Portfolio Balance Approach to Capital Controls," University of Oregon Economics Department Working Papers 2006-10, University of Oregon Economics Department.
    8. A. R. Pagan & Douglas Laxton & Luis Catão, 2008. "Monetary Transmission in an Emerging Targeter; The Case of Brazil," IMF Working Papers 08/191, International Monetary Fund.
    9. Francesco Caselli & Guy Michaels, 2013. "Do Oil Windfalls Improve Living Standards? Evidence from Brazil," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 208-238, January.
    10. Annabelle Mourougane, 2011. "Explaining the Appreciation of the Brazilian real," OECD Economics Department Working Papers 901, OECD Publishing.
    11. Paulo A Medas & Daria V Zakharova, 2009. "A Primeron Fiscal Analysis in Oil-Producing Countries," IMF Working Papers 09/56, International Monetary Fund.
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    Cited by:

    1. Jaroslava Durčáková & Ondřej Šíma, 2013. "BRICS: Exchange Rate policy in Context of Internal and External Equilibrium," Český finanční a účetní časopis, University of Economics, Prague, vol. 2013(4), pages 7-29.

    More about this item

    Keywords

    Brazil; Brésil; fiscal policy; monetary policy; politique budgétaire; politique monétaire;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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