The contribution of fiscal policy to the 2015-2016 Brazilian crisis: an analysis based on central government primary expenditure and revenue multipliers in the period 1997-2018

We estimated a structural VAR based on Blanchard and Perotti (2002)’s methodology with updated data of the central government from Gobetti and Orair (2017) in order to estimate fiscal multipliers. The result suggests a higher multiplier in the complete sample (1997-2018) than in the pre-crisis sample (until 2014) for social benefits and public investments. Our first exercise assesses the reorientation of fiscal policy towards subsidies between 2011 and 2014. GDP in the scenario in which subsidies are destinated to public investments would be 2.7% above the actual GDP in 2014. The second exercise projects that, if public investments had kept the same average growth rate of 2006-2010 during the crisis, GDP would be 6% above the observed GDP in 2017. Also, GDP would be 2.53% below the actual if social benefits had not grown in 2016 and 2017.

Keywords:
fiscal multipliers; fiscal policy; public investment; social benefits; VAR