Abstract
This paper estimates a fiscal reaction function for Brazil and investigates how the government's fiscal reaction has changed over time when controlling for cyclical variations in output and the relative participation of indexed debt. Using monthly data since 1991, we estimate a rolling reaction function with a one observation step and a sample-window of 12 observations. Our results indicate that the government's fiscal response has been such that a one percent increase in the debt-GDP ratio can be associated to an average increase in the primary surplus of approximately 0.096% over GDP or 9.6 basis points; the government's fiscal reaction has become more stable but less responsive to the debt-income level after 2000 and assumed a declining trend after 2006.
Keywords
Fiscal reaction function; Fiscal sustainability; Brazil
Source: Central Bank of Brazil
Source: Author's calculations based on data from Banco Central do Brasil. a/ Twelve-month rolling regressions
a/ Debt series 4537 and 13762. "New methodology" excludes Central Bank securities used for monetary policy and other items; "standard" is the measure used by international institutions. Source: Central Bank of Brazil
