Fiscal fatigue and public debt limit in Brazil: Are we on sustainable path?

Arbeitspapier

In this paper I use Ghosh et al. (2013) approach to assess Brazil's fiscal sustainability, fiscal fatigue, and public debt limit. Using monthly data for the last 21 years, I estimate Brazil's fiscal reaction function and an eventual fiscal fatigue effect, which is a lack of government's will (or capability) to implement higher primary surpluses as a reaction to higher levels of debt. I show that fiscal fatigue occurs at relatively mild levels of debt in Brazil. I also define Brazil's debt limit, which is the precise level of debt/GDP ratio above which the debt dynamics becomes explosive, public debt becomes unpayable, and the government invariably defaults. I show that the debt limit in Brazil is much lower than the limits that have been estimated for advanced economies.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper ; No. 250

Classification and Topics

• Classification: Politik ; Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes ; Fiscal Policy ; National Debt; Debt Management; Sovereign Debt
• Subject: primary balance ; debt/GDP ratio ; fiscal fatigue ; debt limit

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Pereira, Rodrigo Mendes
• Event: Veröffentlichung
• (who): Institute for Applied Economic Research (ipea)
• (where): Brasília
• (when): 2020

Further information

• DOI: doi:10.38116/dp250
• Handle: http://hdl.handle.net/10419/247224
• Last update: 10.03.2025, 11:43 AM CET