Fiscal sustainability and Brazilian rules: an evaluation of the past and propositions to the future

Authors

Abstract

This article discusses the Brazilian fiscal rules with two objectives: (i) to evaluate empirically the primary target regime in Brazil on the gross debt of the general government between January 2002 and October 2022; and (ii) propose improvements to the Brazilian fiscal normative rules. Regarding the first objective, this will be done with two different econometric techniques: threshold autoregressive approach (TAR) and switching Markov regime regression models. The second objective will be reached with a dynamic equation to propose a reformulated spending limit, with countercyclical flexibility for discretionary spending. Estimates via threshold autoregressive relative to objective (i) indicate that a primary surplus of 1.8% of GDP puts the gross debt of the general government on a downward path and that a primary deficit of −1.1% of GDP can put it on an explosive path. Estimates from switching Markovian regimes show that a primary surplus of 2% of GDP reduces the gross debt of the general government and, in alternative scenarios tested for primary surpluses of 3% of GDP, no better effects on it are verified.

Author Biography

Benito Adelmo Salomão Neto

Programa de Pós-Graduação em Economia da Universidade Federal de Uberlândia

Published

2023-11-24