Abstract
This article analyzes the fiscal sustainability of the Brazilian economy in recent decades. It evaluates the solvency of public debt in Brazil through the cointegration tests that showed a long-term relationship between public revenue and expenditure in the period of 1975 (I) to 2010 (II). The results show a solvency ratio between the Revenue / GDP ratio and expense / GDP ratio. That is, for each $ 1.00 spent per unit of product, one gets a return of $ 1, 0078 of revenue collected per unit of product. On the other hand, the total revenue and total expenditure (deflated by the IGP-DI) do not pass through the solvency test if revenue from seigniorage is not included, that is, for each $ 1.00 spent deflated by the IGP-DI, one gets a return of $ 0, 9922 of revenue collected deflated by the IGP-DI, a value less than $ 1.00. Furthermore, fiscal sustainability tests for the period 1964 to 2008 reveal two important results: i) an increase in debt/capital stock ratio negatively affects the growth rate of capital stock and also negatively affects the growth rate of the product; ii) fiscal policy is weakly sustainable which could lead to a possible problem of insolvency. Key words: Fiscal solvency, fiscal sustainability, debt/capital stock ratio.
Highlights
The recent international financial crisis, known as the subprime crisis, which began with the mortgage crisis in the U.S housing sector had impact the world affecting emerging and developed countries
The results presented in the two systems converge: i) the fiscal policy is weakly sustainable which could lead to a possible problem of insolvency proceedings; ii) debt as a proportion of capital stock in the previous period negatively affects the rate of capital accumulation
We find empirical evidence that reinforces this concern, that is, the increase of debt/capital stock ratio contributes to the reduction of rates of output growth
Summary
The recent international financial crisis, known as the subprime crisis, which began with the mortgage crisis in the U.S housing sector had impact the world affecting emerging and developed countries. In an attempt to alleviate the sharp drop in the level of economic activities, countries used countercyclical policies, including expansionary fiscal policies. Such policies resulted in high budget deficits and strong public sector debts increments. Part of the countries of the Euro zone has very delicate fiscal situation with Greece, Ireland, Spain and Portugal This new fiscal situation of derangement of the European countries can compromise the socio-economic, political and institutional design of the European common market. In this context, the discussion on the fiscal fundamentals of economies is again back in vogue
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