The quality of fiscal adjustment and the long-run growth impact of fiscal policy in Brazil
The authors describe the main trends of Brazil's fiscal policy during the past decade and analyze (1)the ability to raise the primary surplus in response to external shocks, (2) the pro-cyclical nature of fiscal policy, and (3) the long-run impact of government expenditure composition and taxation. They analyze the use of the primary balance as a policy tool within the Drudi-Prati model, wherein the government uses the primary balance to reveal its commitment to service its debt. The authors verify that both the debt ratio and the primary balance are determinants of spreads and credit ratings in Brazil. But the relationship is nonlinear: the impact of the primary balance on spreads is amplified as the debt ratio increases. Using an Autoregressive Distributed Lag (ARDL) approach, the authors analyze the relationship between the primary balance and economic activity, finding a positive correlation in the long run. However, in the short run fiscal expansions are associated with primary balance reductions and vice-versa during output contractions, confirming the procyclical nature of fiscal policy in the short run. The authors use two approaches, ARDL and a cointegrating value at risk (VAR), to analyze the interaction between public expenditure composition and taxation on growth. Similar results are obtained: large elasticities of output with respect to capital stocks, a significant negative impact of taxation on long-run GDP, and a negative impact of increasing government consumption and transfer payments on GDP. These results shed light on the contribution of fiscal policy to disappointing growth performance in Brazil during the past decade.
|Date of creation:||01 Sep 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alberto Alesina & Roberto Perotti, 1995. "Fiscal Expansions and Fiscal Adjustments in OECD Countries," NBER Working Papers 5214, National Bureau of Economic Research, Inc.
- Hurlin, Christophe, 2001. "How to estimate the productivity of public capital ?," Economics Papers from University Paris Dauphine 123456789/6177, Paris Dauphine University.
- Michael Gavin & Ricardo Hausmann & Roberto Perotti & Ernesto Talvi, 1996.
"Managing Fiscal Policy in Latin America and the Caribbean: Volatility, Procyclicality, and Limited Creditworthiness,"
Research Department Publications
4032, Inter-American Development Bank, Research Department.
- Michael Gavin & Ricardo Hausmann & Roberto Perotti & Ernesto Talvi, 1996. "Managing Fiscal Policy in Latin America and the Caribbean: Volatility, Procyclicality, and Limited Creditworthiness," IDB Publications (Working Papers) 6797, Inter-American Development Bank.
- Barro, R.J., 1988.
"Government Spending In A Simple Model Of Endogenous Growth,"
RCER Working Papers
130, University of Rochester - Center for Economic Research (RCER).
- Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October.
- Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
- Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
- Aschauer, David Alan, 1989.
"Is public expenditure productive?,"
Journal of Monetary Economics,
Elsevier, vol. 23(2), pages 177-200, March.
- Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
- Christophe Hurlin, 2001. "Estimating the contribution of public capital with times series production functions: a case of unreliable inference," Applied Economics Letters, Taylor & Francis Journals, vol. 8(2), pages 99-103.
- Narayana Kocherlakota & Christopher Phelan, 1999. "Explaining the fiscal theory of the price level," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 14-23.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:4004. 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: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.