Abstract
<p class="normal"><span lang="EN-US">The present paper analyzes four fiscal policy rules in a Stock-Flow Consistent model. The rules are: (i) government expenditures as a fixed proportion of GDP; (ii) government deficit as a fixed proportion of GDP; (iii) government debt as a fixed proportion of GDP; and (iv) a balanced budget. Then the economic trends implied by each rule are analyzed, and they are all compared. Some of the main findings can be summarized as follows: the more expansionist (or less contractionist) rules present higher growth rates, as expected; there is an inverse relationship between government debt and private debt, with the former being higher under the first rule, and lower in the balanced budget rule, the opposite happening in the case of private debt. Finally, considering enterprises’ profitability, we conclude that the best fiscal rule for firms is the first one, and, for the banking sector, also not surprisingly, it is the balanced budget rule.</span></p>
Highlights
In its latest country report about Brazil, the IMF stated that:“Fiscal outcomes have been disappointing
In this paper the Stock-Flow Consistent (SFC) method will be applied to study different fiscal policy rules, so that one can consider what is likely to happen, on a preliminary basis, in Brazil, the austerity policy pursued in that country is not modeled because it does not fit any other previous experience3
Though, we avoid the complications that arise from this approach, following instead an uncomplicated modeling approach, similar to the one presented in Dos Santos and Zezza (2008) and Pedrosa and Macedo e Silva (2014)
Summary
In its latest country report about Brazil, the IMF stated that:. “Fiscal outcomes have been disappointing. Even by financial institutions, such as Goldman Sachs (see Hatzius and Stehn, 2012) Following this path, in this paper the SFC method will be applied to study different fiscal policy rules, so that one can consider what is likely to happen, on a preliminary basis, in Brazil, the austerity policy pursued in that country is not modeled because it does not fit any other previous experience. In this paper the SFC method will be applied to study different fiscal policy rules, so that one can consider what is likely to happen, on a preliminary basis, in Brazil, the austerity policy pursued in that country is not modeled because it does not fit any other previous experience3 Such a fiscal rule goes against recent empirical findings regarding the negative impact of austerity on output and employment, such as Blanchard and Leigh (2013), Borsi (2016) and Klein (2016).
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