FISCAL RULE, AUTOMATIC STABILIZERS AND DISCRETIONARY FISCAL ACTIONS IN BRAZIL

Abstract

This article analyzes the nature of the fiscal rule in Brazil, during the period from January 2005 to July 2012, by using a VEC model. Although the initial findings identify a (weak) fiscal rule, as nominal deficits react counter-cyclically to domestic public debt and inflation changes, when we isolate the discretionary component of the fiscal policy its pro-cyclical bias can be highlighted, thus contributing to understand the preliminary findings and why such a policy is not enough to impose a sustainable downturn movement on the public debt/GDP ratio in Brazil over the last years.