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    • The core results corroborate those of some

    2018-11-13

    The core results corroborate those of some recent studies, as Luporini (2012), and signal for a “shield” of the Brazilian economy in relation to the possible effects of an eventual increase in public spending to stimulate economic growth and/or to minimize the effects of the international financial crisis to explain an increasing capacity to generate primary surplus by the government. Besides, it is found evidence of two structural changes along the period: one in mid-1994 and the second in early 2003, with a duplicate of the initially innocuous fiscal response by the government to the increasing public debt. Following this introduction, it is stated in section 2 the concepts involved in determining the fiscal results of the public sector in Brazil and the YO-01027 of net debt and the primary surplus as a proportion of GDP along the period of analysis. Section 3 provides a review of the literature related with this issue in order to support the advantages of the methodology detailed in Section 4. The empirical exercise and the relevant results are treated in Section 5, followed by the final remarks.
    The timely trend of public debt in Brazil For the measurement of fiscal results, the concept of public sector here used includes the Central Bank of Brazil (BCB) and the so called non-financial public sector, which in turn comprises the direct and indirect administration of the Federal Government, the state governments, the state enterprises and the National Social Security Institute (INSS). The balance of the consolidated public sector comprises the results of the General Government and, residually, the business activities. The Gross General Government Debt (GGGD) covers the total debt in the three spheres of government to the private sector, public financial sector, BCB and the rest of the world. The Net Debt is the balance between the total credits and debts of the Government in its three levels, which include assets with different degrees of liquidity. Among the assets with higher degrees of liquidity are the bank deposits of Social Security, the tax collected and not transferred and other deposits in the National Treasury and the BCB, while those of lower liquidity include the credits from the state enterprises, the resources of the Workers Support Fund (FAT) and equity of constitutional funds. This is the concept of Public Sector Net Debt (DLSP) to be considered in this study. Considering the importance of economic growth for the sustainability of the Government\'s fiscal policy, Fig. 1 depicts the path of the net debt/GDP and the primary surplus/GDP ratios in Brazil, from BCB monthly data (December 1991–December 2008). In order to improve the transparency of informations in its data bank, the BCB started to disclose in 1996 the recognition of contingent liabilities in the fiscal statistics. This attitude, connected with the substitution of internal debt for external debt, implied a significant increase in both the indicator illustrated in Fig. 1 for the DLSP and specially the amount of net domestic public debt (DILSP) as a proportion of national GDP. It is also worth mentioning the effect of some political devices implemented by the Brazilian government to restrain an eventual acceleration of the public debt. First, the Law No. 8727/93 succeeded only up until February 1994, when the debt/GDP ratio remained stable at around 32%, while the Law No. 9496/97 generated stability for only two months after its implementation. The Law of Fiscal Responsibility (LRF) created in 2000 to discipline public expenditures obtained the best performance among other devices, either in real terms or in relation to GDP. Due to the rigidity nature offered by this device kept the net debt of the public sector stable at 50% of GDP over the year of its implementation, although in May 2001 this indicator turn to a new upward trend.
    Approaches in the literature The literature on sustainability of fiscal policy that applies the temporal government budget constraint started with the seminal article by Hamilton and Flavin (1986) who test whether the budget deficit path follows a stationary stochastic process. The rejection of the null hypothesis of a unit root on that series would imply that the deficit would be consistent with the government budget constraint.