A note on expansionary austerity in Brazil<sup>*</sup>

Salomão Neto, BenitoAdelmo

doi:10.5935/0034-7140.20230016

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Revista Brasileira de Economia

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Original Article • Rev. Bras. Econ. 77 • 2023 • https://doi.org/10.5935/0034-7140.20230016 copy

A note on expansionary austerity in Brazil^*

Authorship SCIMAGO INSTITUTIONS RANKINGS

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

Keywords
expansionary austerity; dynamic multipliers; fiscal policy; growth; NARDL

Discrimination	Model 1	Model 2	Model 3	Model 4	Model 5	Model 6	Model 7	Model 8
Variables	DBGG	DLSP	Tribute	Expense	Direct	Indirect	Obrigato	Discricri
Asymmetry Short Term	7.25 [0.00]	1.28 [0.25]	0.99 [0.31]	0.002 [0.96]	1.66 [0.19]	0.007 [0.92]	0.10 [0.74]	1.95 [0.16]
Asymmetry Long Term	1.58 [0.20]	0.19 [0.65]	14.3 [0.00]	3.45 [0.06]	0.02 [0.86]	0.007 [0.92]	0.10 [0.74]	7.50 [0.00]

Discrimination	Mismatches	Diagnostic Tests		Cointegration Testing Bounds Testing
		LM Test Autocorrelation	Stability Tests	Estat. F	Limit I(0)	Limit I(1)
		LM Test Autocorrelation	CUSUM/CUSUMQ	Estat. F	Limit I(0)	Limit I(1)
Model 1	(2, 3, 2, 0, 2)	1.91 [0.14]	Stable/Stable	8.00	2.56	3.49
Model 2	(2, 3, 2, 0, 2)	0.55 [0.57]	Unstable/Unstable	6.80	2.56	3.49
Model 3	(4, 3, 1, 1, 2)	0.99 [0.37]	Stable/Stable	5.24	2.56	3.49
Model 4	(2, 0, 1, 2, 2)	2.76 [0.06]	Unstable/Stable	4.20	2.56	3.49
Model 5	(4, 3, 0, 0, 2)	0.75 [0.47]	Stable/Stable	5.70	2.88	3.87
Model 6	(2, 0, 0, 2, 2)	2.21 [0.11]	Stable/Stable	4.50	2.88	3.87
Model 7	(2, 0, 0, 1, 2)	2.56 [0.07]	Unstable/Stable	3.40	2.88	3.87
Model 8	(3, 0, 1, 1, 2)	1.58 [0.20]	Stable/Stable	6.19	2.88	3.87

Discrimination	Model 1	Model 2	Model 3	Model 4	Model 5	Model 6	Model 7	Model 8
Dependent Variable	GDP	GDP	GDP	GDP	GDP	GDP	GDP	GDP
Fiscal Variable	Gross Debt	Net Debt	Taxes	Spend	Direct	Indirect	Mandatory	Discretionary
Debt (Positive)	-0,02 (0,08)	-0,01 (0,09)	-	-	-	-	-	-
Debt (Negative)	-0,49 (0,14)^{^**}	-0,22 (0,15)	-	-	-	-	-	-
Tributes (positive)	-	-	0,66 (0,10)^{^*}	-	0,50 (0,08)^{^***}	1,05 (0,54)^{^*}	-	-
Tributes (negative)	-	-	0,45 (0,21)^{^*}	-	0,18 (0,25)	1,01 (0,24)	-	-
Expenses (positive)	-	-	-	1,15 (0,97)	-	-	-4,68 (57,9)	1,01 (0,55)^{^*}
Expenses (negative)	-	-	-	1,19 (1,76)	-	-	-8,37 (97,9)	0,72 (0,54)
FBCF	0,30 (0,10)^{^**}	0,49 (0,13)^{^***}	0,12 (0,11)	0,11 (0,48)	0,21 (0,09)^{^**}	-0,16 (0,52)	3,05 (30,02)	-1,58 (1,10)
Terms of Exchange	0,44 (0,17)^{^**}	0,35 (0,26)	0,22 (0,22)	-1,29 (1,57)	0,21 (0,11)^{^*}	1,02 (0,85)	7,33 (82,3)	22,07 (5,95)^{^***}

Specification (Variable)	ECM (-1) [Prob]	Statistically Significant Variables
Model 1 (Gross Debt)	-0.02 [0.00]	GDP (-1), Positive GDGB (0, -1, -2), Negative GDGB (0, -1), Terms of Trade (0, -1)
Model 2 (Net Debt)	-0.01 [0.00]	GDP (-1, -2), DLSP Positive (0, -1, -2), DLSP Negative (0, -1), Terms of Trade (0, -1)
Model 3 (Total Taxes)	-0.02 [0.00]	GDP (-1), Tax Positive (0, -1, -2) Tributes Negative (0), GFCF (0), Terms of Trade (0, -1)
Model 4 (Total Expenses)	-0.007 [0.000]	GDP (-1), Negative Expenditure (0), GFCF (0, -1), Terms of Trade (0, -1)
Model 5 (Directs)	-0.03 [0.000]	GDP (-1, -2, -3), Positive Direct Taxes (0, -1, -2), Terms of Trade (0, -1)
Model 6 (Indirect)	-0.01 [0.000]	GDP (-1), GFCF (0, -1), Terms of Trade (0, -1)
Model 7 (Mandatory)	-0.0008 [0.000]	GDP (-1), GFCF (0), Terms of Trade (0, -1)
Model 8 (Discretionary)	-0.01 [0.000]	GDP (-1, -2), Discretionary Negative (0), GFCF (0), Terms of Trade (0, -1)

Variables	Description	Source
GDP	Gross Domestic Product	BCB
DBGG	General Government Gross Debt	BCB
DLSP	Public Sector Net Debt	BCB
DespTot	Total Union Expenditure	STN
DespObrig	Federal Obligatory Expenditures	STN
DespDisc	Discretionary Union Expenses	STN
Trib	Total Federal Revenues	STN
TribDir	Direct Federal Tax Revenue	STN
TribInd	Indirect Tax Revenues	STN
FBCF	Net Investment	IPEA
Exchange	Terms of Trade Index	FUNCEX

Variable	Headings
Direct Taxation	IRPF and PRPJ (Individual and Corporate Income Tax); CSLL (Social Contribution on Net Profit); CRGPS (Contribution on the General Social Security System).
Indirect Taxation	Tax on Imports; IPI (Tax on Industrialized Products); PIS (Social Integration Program); COFINS (Contribution for the Financing of Social Security); IOF (Tax on Financial Operations); CPMF (Provisional Contribution on Financial Transactions); CIDE.
Mandatory Expenses	General Regime of Social Security; Personnel and Charges; Other Mandatory Expenses.
Discretionary Expenses	Expenses under Financial Programming from the National Treasury.

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E-mail: rbe@fgv.br

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[1] *
O presente estudo foi realizado com o apoio da CAPES.

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A note on expansionary austerity in Brazil*

Abstract

A note on expansionary austerity in Brazil^*