Abstract
We used a deterministic dynamic applied general equilibrium model with a representative agent to evaluate fiscal policy alternatives for Brazil. The changes in the fiscal mix that mostly increase the long-run per-capita output (by about 2%) are: the reduction of government consumption accompanied by the decrease of the capital income tax rate, and the increase of government investment financed by the reduction of transfers. The former is also the one the produces the largest increase in welfare. The public debt consolidation strategies considered used only one fiscal instrument and aimed to reduce public debt by 10% in 10 years and its subsequent stabilization. From the point of view of the level of consumption and of the level of capital stock in the long run, and of the discounted flow of welfare, the best instrument was the tax rate on capital income. From the point of view of output in the long-run, the best instrument was government investment, followed by the tax rate on capital income.
Keywords
Fiscal policy; Public debt; Dynamic general equilibrium; Growth models