The quality of fiscal adjustment and the long-run growth impact of fiscal policy in Brazil
By: Fernando Blanco, Santiago Herrera.
Contributors: Herrera, Santiago.; World Bank.
Series: Policy research working paper -- 4004; Policy research working papers (Online) -- 4004.
Publisher: World Bank
Published: 2006
Place of publication: [Washington, D.C
Language: eng
Format: Electronic resource
Subjects: Fiscal policy -- Brazil; Brazil -- Appropriations and expenditures
Description: "The authors describe the main trends of Brazil's fiscal policy during the past decade and analyze (1) the ability to raise the primary surplus in response to external shocks, (2) the pro-cyclical nature of fiscal policy, and (3) the long-run impact of government expenditure composition and taxation.  They analyze the use of the primary balance as a policy tool within the Drudi-Prati model, wherein the government uses the primary balance to reveal its commitment to service its debt.  The authors verify that both the debt ratio and the primary balance are determinants of spreads and credit ratings in Brazil.  But the relationship is nonlinear: the impact of the primary balance on spreads is amplified as the debt ratio increases.  Using an Autoregressive Distributed Lag (ARDL) approach, the authors analyze the relationship between the primary balance and economic activity, finding a positive correlation in the long run.  However, in the short run fiscal expansions are associated with primary balance reductions and vice-versa during output contractions, confirming the procyclical nature of fiscal policy in the short run.  The authors use two approaches, ARDL and a cointegrating value at risk (VAR), to analyze the interaction between public expenditure composition and taxation on growth.  Similar results are obtained: large elasticities of output with respect to capital stocks, a significant negative impact of taxation on long-run GDP, and a negative impact of increasing government consumption and transfer payments on GDP.  These results shed light on the contribution of fiscal policy to disappointing growth performance in Brazil during the past decade. "--World Bank web site.
Notes: Title from PDF file as viewed on 9/6/2006.

Includes bibliographical references.

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Mode of access: World Wide Web.