Itaú BBA - Brazil Structural Fiscal Balance

Working papers

< Volver

Brazil Structural Fiscal Balance

abril 19, 2012

The paper provides the basis of our proposal to adopt a fiscal regime based on structural fiscal balance targets.

In this paper, we provide new, updated estimates for Brazilian public sector’s structural primary fiscal balance. Our estimates differ markedly from unadjusted budget results. The numbers point to a tightening fiscal stance in the first part of the 2000s and an easing fiscal stance in the latter part of the decade. Our calculations also reveal a considerable fiscal effort in 2011 (up to Q3). According to our estimates, judging the fiscal stance only from the standpoint of unadjusted primary fiscal balance can lead to misleading conclusions about policymaking.

Our results confirm Brazil’s pro-cyclical fiscal drive evidenced in the literature, with a strongly negative correlation between the policy stance (measured by the structural balance) and the action of automatic stabilizers such as tax collection (measured by the cyclical balance). We also note a recurrent use of budget-enhancing one-off operations in times of fiscal consolidation or cyclical downturns.

We conclude that the current policy setting – based on non-structural primary fiscal balance targets – produces a pro-cyclical fiscal policy bias: in booming years, it leads to overspending; in recession years, it leads to tightening stance and a search for extraordinary revenues.

The current fiscal framework needs to generate incentives to raise public savings, especially in expansion years. The use of structural primary balance targets could make fiscal policy “lean against the wind”. In our view, this new policy setting would help boost government savings and investment, increasing the rate of sustained economic growth.

< Volver