Article on the relationship between Brazilian debt and GDP is published in academic journal
The article “Um alerta sobre a recente queda na reação fiscal no Brasil” (“A warning about the recent drop in the fiscal reaction in Brazil”), authored by the professor of FGV’s EPGE Brazilian School of Economics and Finance (EPGE) Eduardo Lima Campos and Rubens Penha Cysne, has just been published in the Brazilian Journal of Political Economy, an academic journal focusing on the debate on economic and social development and macroeconomic stability.
In the study, the authors assessed two important and worrying messages conveyed by the reaction of the Brazilian government’s primary surplus to the evolution of the debt-to-GDP ratio. First, the professors highlight that the fiscal reaction function has decreased almost constantly since 2012. The second consideration is that this function shifted from positive to negative starting in October 2017.
“With real effective interest rates (on net public debt) higher than the GDP growth prospects, the negative figures for the fiscal reaction function mean an unsustainable debt trajectory. Therefore, significant fiscal adjustments must be made in the short term,” they noted.
Faced with this imbalance, the authors argue that the country must be prepared for a sudden change in the conduct of its fiscal policy, which considers the rebalancing and sustainability of the debt-to-GDP ratio.
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