An alert on the recent fall of the fiscal reaction in Brazil

Eduardo Lima Campos and Rubens Cysne

No 799, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: Recent evaluations of how the Brazilian government’s primary surplus reacts to the evolution of the debt to GDP ratio convey two important (and worrisome) messages: first, the reaction function has been almost steadily decreasing since 2012. Second, it has turned from positive to negative figures as of October of 2017. With effective real interest rates (over the net government debt) higher than prospects of GDP growth, negative figures for the fiscal reaction function mean a non-sustainable debt trajectory. Significant fiscal adjustments will have to be made in the short run.

Date: 2018-08
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Journal Article: An alert on the recent fall of the fiscal reaction in Brazil (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:fgv:epgewp:799

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