Brazilian Fiscal Policy and Its Procyclical Nature: A Long-Term Analysis

Abstract

Fiscal policy should be contractionary during economic expansion and expansionary during recessions. The objective of this article is to investigate the nature of long-term discretionary fiscal policy in Brazil in relation to the level of economic activity and the terms of trade. A fiscal policy variable without cyclical effects was chosen, and the results of the cointegration analysis indicate that long-term fiscal policy is destabilizing; this findings parallels those in the literature. However, in regard to trade cycles, this policy prevents their amplification.