The Brazilian Fiscal Storm: Public Consumption, Indebtedness, and Constraints on Growth

Ricardo da Costa Nunes and Selene Peres Peres Nunes

International Journal of Economics and Finance, 2026, vol. 18, issue 2, 52

Abstract: Organised interests have pushed budgets towards current spending rather than public investment. The common pool account explains the pattern- gains are concentrated, costs diffuse. Routine outlays and tax receipts rise, yet deficits persist and the debt burden climbs. As fiscal space tightens from one budget to the next, investment are crowded out; national saving falls, and growth weakens. Public services then shrink, a dynamic consistent with a tragedy of the commons and growing reliance on debt finance. Appeals to welfare are used to justify departures from fiscal rules. A two-gap model sets out the mechanism. On the policy side, PRS No. 8/2025 would place a ceiling on public debt, and a credible fiscal anchor is required to break the cycle and rebuild growth. In this context, PRS 8/2025 proposes a debt ceiling of 80% of GDP or 6.5 times Net Current Revenue (RCL), with a 15-year gradual adaptation (Senado Federal, 2025b), aligning with constitutional mandates to enhance fiscal credibility and prioritize productive investment.

Date: 2026
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