Raising productivity through structural reform in Brazil

Jens Arnold () and Robert Grundke

No 1660, OECD Economics Department Working Papers from OECD Publishing

Abstract: The recovery from the current deep recession caused by the COVID-19 pandemic will require raising productivity through structural reforms. This implies a number of challenges for economic policies. With large parts of the economy shielded from competition, firms face weak incentives to become more productive. Sizeable shares of labour and capital are trapped in low-productivity firms that survive on the back of support from distortive policies. Reallocation mechanisms such as continuous firm entry, exit or the growth of stronger firms on the expense of less productive ones appear weaker than elsewhere. Domestic regulatory burdens and market entry barriers are high, reducing domestic competitive pressures. External competition is hampered by high trade barriers that have precluded Brazil from the opportunities that an increasingly integrated world economy can offer. A fragmented tax system gives rise to one of the world’s highest tax compliance costs and a wide array of exemptions and special regimes reduces fairness and the redistribution effect of taxes. Financial markets used to be dominated by directed credit, but thanks to a successful policy reform that aligned directed lending rates with market rates, they are now undergoing a profound transformation. Challenges in contract enforcement suggest scope for changes in the organisation of the judiciary to reduce judicial uncertainty and reduce trial durations.

Keywords: allocative efficiency; Brazil; judicial efficiency; product market regulation; productivity; structural policies; trade policy (search for similar items in EconPapers)
JEL-codes: D24 F13 F15 H20 K23 K41 L51 O47 O54 (search for similar items in EconPapers)
Date: 2021-03-16
New Economics Papers: this item is included in nep-law
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