An RBC model of the Brazilian economy with stylized fiscal shocks* * I benefited from the comments of Helano Dias, Ricardo Cavalcanti, and an anonymous referee. I also received valuable inputs from the participants of IPEA/Rio macroeconomics seminars.

Rodrigo M Pereira About the author

This paper builds a real business cycle (RBC) model with government, aiming to replicate key features of the Brazilian economy. I first calibrate and then I use Bayesian methods to estimate the model for Brazil, with 20 years of quarterly aggregate data. Contrary to the conventional knowledge, I find mixed evidence on the pro-cyclicality of the fiscal policy in Brazil. Moreover, the results suggest that tax rate changes have been used to counter changes in the level of government indebtedness, however in a small degree if compared to other international evidence.

RBC model; fiscal policy; Bayesian estimation

Fundação Getúlio Vargas Praia de Botafogo, 190 11º andar, 22253-900 Rio de Janeiro RJ Brazil, Tel.: +55 21 3799-5831 , Fax: +55 21 2553-8821 - Rio de Janeiro - RJ - Brazil