Fiscal policy in Brazil in Real Plan: pro or countercyclical?

Abstract

The methodology of Structural Balance Budget proposed by the IMF and OECD is applied to Brazil from 1997 to 2013 with the objective to identify the behavior of fiscal policy. This methodology, according to the international literature, is an very important instrument, once it takes into account the effect of the business cycle on public finances. The results showed that fiscal policy, as a countercyclical instrument, began to be used from 2004 or 2005, depending on the methodology. In the period in which the country suffered the greatest consequences of the subprime crisis, fiscal policy proved to be a very well used tool to mitigate the effects of the crisis. One reason for the improvement of the use of fiscal policy, at this period, was the decrease in the stock of public debt, provided by primary surpluses occurred in previous years. This results are in line with those found by public finances researchers. Thus, the pre-crisis fiscal situation has become an important element in the performance of countercyclical fiscal policies. Furthermore, both methodologies did not show large differences among themselves.