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The Political Economy of Productivity in Brazil

Lee Alston, Bernardo Mueller (), Marcus Melo and Carlos Pereira

No 1123, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: This paper explores the link between Brazil's political institutions and its disappointing productivity and growth in recent decades. Although political institutions provide the president with incentives and the instruments to pursue monetary stability and fiscal discipline they simultaneously raise the costs of achieving those very objectives. The insulation of certain expenditures from presidential discretion necessitates the use of other policy options, such as high taxation levels and cuts in unprotected expenditures, which put a drag on productivity and growth. In a context of robust checks and balances and interest group fragmentation, a state overburdened by constitutional entitlements has resorted to massive increases in taxation. The resulting environment possesses both essential elements for sustainable economic growth and distortions that conspire against its realization. While some improvements in productivity and growth have occurred in the past decade, the pace has been slow and incremental.

Keywords: IDB-WP-104 (search for similar items in EconPapers)
JEL-codes: O25 O43 (search for similar items in EconPapers)
Date: 2010-12
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