Abstract
This chapter presents an overview of the main trends of Brazilian fiscal policy over the last decade, particularly for the period since the 2007–2008 Great Financial Crisis (GFC). It focuses on the changes in composition and orientation of fiscal policy during three sub-periods. The first was a sub-period characterised by fiscal expansion (2005–2010), whose fiscal space was channelled mainly towards public investment and redistributive transfers . It had an extraordinary economic performance. During the second sub-period (2011–2014), subsidies and tax cuts played a central role in the fiscal expansion. This new fiscal policy mix proved ineffective in preventing the economy from entering a downturn. The third sub-period (from 2015 onwards) is characterized by the shift to fiscal austerity , and by the worst recession ever recorded in the country’s history. Finally, it will discuss some of the challenges and socio-economic risks resulting from the recent and radical shift towards fiscal austerity.
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Notes
- 1.
Orair (2015) presents a description of these tax cuts and analysis of the paradox of tax burden´s stability under a preponderance of tax cuts.
- 2.
In 2014, the minimum wage value (BRL724 per month, or roughly USD268) was paid to nearly 25 million beneficiaries of social benefits.
- 3.
Chapter “New Features of the Brazilian External Sector since the Great Global Crisis” of this book provides a deeper discussion and relevant analysis of the external sector.
- 4.
- 5.
The indicators of poverty and inequality, based on household surveys, have shown a decreasing tendency over the decade 2005-2014, due to the higher growth of income at the bottom of the income distribution, as demonstrated by Ipea (2015). However, recent studies, such as Medeiros et al. (2015), based on tax data, which captures more accurately the income of the richest in terms of the income distribution, show that top income concentration has changed little since 2006.
- 6.
During the electoral debate, the opposition defended the austerity thesis and the government defended the country’s fiscal situation, the success of its economic policy faced with a dire international scenario and the need for a mere ‘fine tuning’ of fiscal policy, which would not compromise the legacy of PT administrations. For a deeper analysis of the period, see Levy (2014) that provides a good example of the conventional narrative and Barbosa (2013) for the official one.
- 7.
See Jayadev and Konczal (2010), Guajardo et al. (2011) and Perotti (2011) for a criticism of the ‘austerity myth’. Recently, Alesina et al. (2017) recognised that fiscal consolidations have recessionary short-term effects, which might be mitigated depending on the profile and persistence of fiscal adjustments.
- 8.
Ireland in 1987 was the only reported case of a country in a soft recession before fiscal consolidation (−0,5% GDP growth) that has regained growth, driven mainly by exports.
- 9.
- 10.
According to Hanni et al. (2015) the redistributive impact of the fiscal policy in Brazil is the highest among Latin American countries, reducing the Gini coefficient in 7.1 percentage points mainly due to the effect of public transfers.
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Orair, R.O., Gobetti, S.W. (2017). Brazilian Fiscal Policy in Perspective: From Expansion to Austerity. In: Arestis, P., Troncoso Baltar, C., Prates, D. (eds) The Brazilian Economy since the Great Financial Crisis of 2007/2008. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-64885-9_9
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