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Fiscal Policy and Debt Sustainability: Cardoso's Brazil, 1995-2002

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  • International Monetary Fund

Abstract

We look into Brazil's public sector accounts during the two administrations of President Fernando Henrique Cardoso: 1995-98 and 1998-2002. We underline the fact that the authorities' attitude was as important as the pace of the structural reforms for understanding the dynamics of the public sector debt and deficit. The high deficit of the first administration (1995-98) resulted from an expansionary policy, while the adjustment of 1999 is seen as proof of a commitment to fiscal rigor and the need to finance public spending adequately. We present a detailed breakdown of the fiscal outcomes. Two important messages come out: (a) the principal cause of the fiscal deterioration in the first Cardoso administration was the deterioration in the primary balance rather than the increase in the interest payments on public debt; and (b) the fiscal adjustment was entirely on account of increased revenues, as the federal primary public expenditure grew in real terms during the eight years of the two administrations. We consider the outlook for fiscal sustainability, and conclude that, to preserve the hard-won fiscal discipline, the authorities' recent austere fiscal attitude should be permanently embedded into the fiscal institutions.

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  • International Monetary Fund, 2004. "Fiscal Policy and Debt Sustainability: Cardoso's Brazil, 1995-2002," IMF Working Papers 2004/156, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2004/156
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    2. Luiz de Mello, 2008. "Estimating a fiscal reaction function: the case of debt sustainability in Brazil," Applied Economics, Taylor & Francis Journals, vol. 40(3), pages 271-284.
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    4. Afonso, José Roberto & Araújo, Eliane Cristina & Fajardo, Bernardo Guelber, 2016. "The role of fiscal and monetary policies in the Brazilian economy: Understanding recent institutional reforms and economic changes," The Quarterly Review of Economics and Finance, Elsevier, vol. 62(C), pages 41-55.

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