Fiscal policy and stabilization in Brazil
Celso Luiz Martone
No 50, Policy Research Working Paper Series from The World Bank
The theoretical basis for the"heterodox shocks"recently implemented in Argentina and Brazil is that chronic inflation is essentially inertial - the product of staggered prices and wage adjustments. The underlying assumption is that the economic process is a cooperative game. Without legal and other forms of coercion, however, individuals tend to cheat - to fix their prices above average to start with. A basic flaw of the"heterodox"stabilization programs was to assume that stabilizing the price level was a precondition for fiscal equilibrium and eventual fiscal reform - instead of the reverse. The fiscal austerity promised after stabilization was never accomplished - blocked by bureaucrats and special interest groups interested in maintaining the status quo. The challenge in these countries is to devise economic programs that could make long-term stabilization programs viable and politically acceptable.
Keywords: Economic Stabilization; Economic Theory&Research; Environmental Economics&Policies; National Governance; Public Sector Economics&Finance (search for similar items in EconPapers)
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