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The bridge to stagnation: Government expenditure cap, reforms and the fall in the business investment share in Brazil (2015-2022)

Author

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  • Haluska, Guilherme
  • Summa, Ricardo
  • Serrano, Franklin

Abstract

The paper assesses the change in direction of economic policy in Brazil during the period from 2015 to 2022 towards fiscal austerity and neoliberal reforms, allegedly with the purpose of opening space for an acceleration of growth led by private investment and net exports, through reduction in the real interest rate and a more depreciated real exchange rate. Although the interest rate has fallen and the exchange rate has indeed depreciated, exports grew less and investment has not increased. Quite the contrary, we show that these policies directly led to a reduction in the absolute size of the internal market and, as a consequence, a decrease in the business investment share. Although a failure in terms of economic growth, the new policy regime was successful in achieving its actual political objectives: the reduction of the relative size of the State in the economy and the weakening of the bargaining power of workers and the associated decrease of the wage share.

Suggested Citation

  • Haluska, Guilherme & Summa, Ricardo & Serrano, Franklin, 2025. "The bridge to stagnation: Government expenditure cap, reforms and the fall in the business investment share in Brazil (2015-2022)," IPE Working Papers 247/2025, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    • Handle: RePEc:zbw:ipewps:308811
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    References listed on IDEAS

    as
    1. Claudio Roberto Amitrano & Alanna Santos de Oliveira & Gabriel Coelho Squeff, 2023. "The Impacts of the Brazilian Labour Reform on Employment, Output, and Labour Productivity," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 70(4), pages 647-669.
    2. Alves-Passoni, Patieene, 2024. "Sectoral composition, export trade partners and value added: an input-output analysis for Brazil and Mexico," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    3. Juan Manuel Campana & João Emboava Vaz & Eckhard Hein & Benjamin Jungmann, 2024. "Demand and growth regimes of the BRICs countries – the national income and financial accounting decomposition approach and an autonomous demand-led growth perspective," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 21(1), pages 17-41, April.
    4. Luiz Fernando de Paula, 2021. "The COVID-19 crisis and counter-cyclical policies in Brazil," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 18(2), pages 177–197-1, September.
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    More about this item

    Keywords

    Brazilian economy; Demand-led growth; Economic policy;
    All these keywords.

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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