Brazilian fiscal policy in perspective: from expansion to austerity

Produced by: 
International Policy Center for Inclusive Growth
Available from: 
August 2017
Paper author(s): 
Rodrigo Octávio Orair
Sergio Wulff Gobetti
Topic: 
Fiscal Policy - Public and Welfare Economics
Year: 
2018

This paper analyses the changes in orientation and composition of Brazilian fiscal policy, focusing on three recent periods and seeking to explore their relationship with economic performance. The first period (2005–2010) was characterised by fiscal expansion, with public investment and redistributive transfers as its main drivers. Economic performance was extraordinary. During the second period of fiscal expansion (2011–2014), the fiscal space was reoriented towards tax cuts and subsidies to private investment, while public investment stagnated. This new fiscal policy mix proved ineffective in preventing the economy from entering a downturn. The third period (from 2015 onwards) has been characterised by a shift to fiscal austerity and by the worst recession ever recorded in the country’s history. Finally, the paper presents some concluding remarks on challenges and socio-economic risks resulting from the recent and radical shift towards fiscal austerity.

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