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

Vol. 39 No. 2 (2019)

Apr-Jun / 2019
Published April 1, 2019
PDF-English
PDF-English

How to Cite

Lima Campos, Eduardo, and Rubens Penha Cysne. 2019. “An Alert on the Recent Fall of the Fiscal Reaction in Brazil”. Brazilian Journal of Political Economy 39 (2), 253-62. https://doi.org/10.1590/0101-31572019-2976.

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

Eduardo Lima Campos
Professor at the Escola Nacional de Ciências Estatísticas do Instituto Brasileiro de Geografia e Estatística – ENCE/IBGE, Rio de Janeiro/RJ, Brasil and at the EPGE Escola Brasileira de Economia e Finanças da Fundação Getulio Vargas (EPGE FGV), Rio de Janeiro/RJ, Brasil.
Rubens Penha Cysne
Professor at the EPGE Escola Brasileira de Economia e Finanças da Fundação Getulio Vargas (EPGE FGV), Rio de Janeiro/RJ, Brasil.
Brazilian Journal of Political Economy, Vol. 39 No. 2 (2019), Apr-Jun / 2019, Pages 253-262

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 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. Therefore, significant fiscal adjustments are required in the short run.

JEL Classification: H30; H60; E50.


Keywords: Brazil, public debt, fiscal reaction, fiscal sustainability, Kalman filter