Fiscal Policy Multipliers in a DSGE Model for Brazil

Marco Cavalcanti and Luciano Vereda
Authors registered in the RePEc Author Service: Luciano Vereda Oliveira

Brazilian Review of Econometrics, 2015, vol. 35, issue 2

Abstract: This paper quanties and compares the macroeconomic eects of shocks to dierent types of public expenditure public investment, social transfers and public employees payroll under various scal policy rules. The analysis is based on a medium-sized DSGE model developed and calibrated to represent the Brazilian economy. The model incorporates a realistic public sector capable of intervening in the economy through several channels;in particular, the model explicitly considers the existence of public employment. The main simulation results are: (i) shocks to social transfers spending increase output in the short run, but generate negative multipliers in the medium run under all scal rules considered; (ii) public investment multipliers may be negative in the short run but are always positive in the medium run; (iii) scal rules relying on distortionary taxation to balance the primary budget can lead to both lower output andhigher in ation; (iv) policy rules based on a more protracted scal adjustment strategy may benet economic activity in the short or medium run,but imply a higher adjustment cost in the long run.

Date: 2015
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