MMT, monetary sovereignty and fiscal policy space in Brazil (1999-2019)

Abstract

There are controversies regarding the applicability of Modern Money Theory (MMT) to emerging countries. In this paper, we shed light on this debate by analyzing the monetary sovereignty and fiscal policy regime in Brazil from 1999 to 2019. An empirical assessment shows the government has a considerable ‘degree’ of monetary sovereignty. However, fiscal rules imposed many restrictions on the State’s capacity to spend, subordinating fiscal policy to austerity. As there are no major macroeconomic constraints to Brazilian monetary sovereignty, it is necessary to change fiscal rules to reorient fiscal policy towards full employment in line with MMT prescriptions.