Fiscal reaction under endogenous structural changes in Brazil

Andrei G. Simonassi, Ronaldo A. Arraes and Augusto Marcos C. de Sena
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Andrei G. Simonassi: Federal University of Ceará (CAEN/UFC) and Research Fellow of CNPq, Brazil
Ronaldo A. Arraes: Federal University of Ceará (UFC) and Business Program at University of Fortaleza (Unifor), Brazil
Augusto Marcos C. de Sena: University of Ceará (UFC) and Business Program at University of Fortaleza (Unifor), Brazil

Economia, 2014, vol. 15, issue 1, 68_81

Abstract: Regarding the importance of fiscal policy in smoothing the impact of shocks such as the international financial and economic crises, the paper analyzes the sustainability of the Brazilian fiscal policy by taking into consideration the possibility of multiple endogenous structural breaks on the coefficients of government reaction function. From monthly data in the period 1991–2008, tests on the reliable estimates dictate the occurrence of structural change in May 1994, and another in February 2003. There has been a situation of fiscal solvency in Brazil, but only from May 1994 the hitherto innocuous actions of government to formulate policies on public debt turn out to be significant, as it rose twofold after February 2003. This reinforces the existence of a more flexible alternative to implement strategic policy in Brazil, if an eventual alternative for increasing public spending is a way of hindering the effects of international financial crises without compromising the fiscal targets.

Keywords: Fiscal reaction function; Endogenous structural changes; Fiscal solvency (search for similar items in EconPapers)
JEL-codes: H6 H62 H63 (search for similar items in EconPapers)
Date: 2014
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