massively hardwired budget (over 90 percent) that mandates expenditures. In addition, a president has to exchange macroeconomic stability for geographically oriented policies with members of his coalition in Congress, which also decreases resources for investments. The only instruments available to presidents to achieve fiscal targets are taxation (by far the highest in Latin America), borrowing (also stretched to the limit), and the compression of remaining expenditures, such as investment in infrastructure.The essence of the argument is that political institutions in Brazil generate a series of policies with desirable characteristics in terms of productivity and economic growth while at the same time imposing severe constraints that hinder those same aspirations. Although political institutions provide the president with the incentives and the instruments to pursue monetary stability and fiscal disciplinenecessary conditions for improvements in productivity and sustainable economic growththey simultaneously raise the costs of achieving those very objectives. By insulating several expenditures from the president's discretion, political institutions force the use of other policy options, such as high taxation levels and cuts in unprotected expenditures, which puts a drag on productivity and growth. This results in an environment that possesses many essential elements for sustainable economic growth, but where several accompanying distortions conspire against its realization. The upshot is that although improvements in productivity and growth have materialized in the past decade, the pace has been slow, gradual and incremental.The role of checks and balances and of interest groups in this process follows the same pattern of promoting virtuous policies while simultaneously creating obstacles for their full realization. Checks and balances, such as the judiciary and the media, are crucial in dissuading the president from deviating from policies that would create an environment conducive to productivity and growth. These very same checks protect entitlements and expenditures, thus forcing the government to seek forms of financing, such as increased taxation, which have negative impacts on productivity and growth. Similarly, the fragmentation of several major interest groups has diluted the potential negative impact of their demands on the government's expenditures. Yet at the same time, it is the interest of several other groups, enshrined in hardwired budgetary legislation, which creates the protected expenditures that force the government to use productivity-reducing policy choices to secure monetary and fiscal stability, for example by neglecting infrastructure investment.Although the government has maintained fiscal discipline, managing to reverse the trend in public debt and bringing it down to more manageable levels, it was reached at the cost of an ever-increasing tax burden and the suppression of several important expenditures considering them as residual, in particular those related to infrastructure. Analyses shows that the drop in infrastructure investment as a percentage of GDP in the last decade has tracked the growing fiscal effort by the government, suggesting that infrastructure investment is in fact crowded out by the state's need to finance those other expenditures, which are not similarly compressible.It is important to acknowledge, however, that the decline in public investment in infrastructure is a common trend in most Latin American countries, with an average decline of about 2.27 percent in the last