A Note on Expansionary Austerity in Brazil

Abstract

This article tests the expansionist austerity hypothesis for Brazil between 2000/01 and 2020/12 through Nonlinear Autoregressive Distributed Lags (NARDL) models. Among the results, a long-term relationship was verified between GDP, gross and net public debt, total, direct and indirect taxes, in addition to total, mandatory and discretionary expenses. With regard to the Error Correction Models, the short-term shocks that affect the Brazilian economy dissipate, however, the adjustment dynamics is too slow for all the fiscal variables. Finally, the analysis of dynamic multipliers reports that austerity policies in Brazil, undertaken on the expenditure, tax or debt side, are expansionist. JEL Codes E32, H62, H68