Fiscal crisis in Brazil: causes and remedy

Vol. 39 No. 1 (2019)

Jan-Mar / 2019
Published January 1, 2019

How to Cite

Holland, Márcio. 2019. “Fiscal Crisis in Brazil: Causes and Remedy”. Brazilian Journal of Political Economy 39 (1):88-107.

Fiscal crisis in Brazil: causes and remedy

Márcio Holland
Escola de Economia da Fundação Getulio Vargas, São Paulo – SP, Brasil.
Brazilian Journal of Political Economy, Vol. 39 No. 1 (2019), Jan-Mar / 2019, Pages 88-107


From 2014 to 2017, Brazil experienced unprecedented fiscal deterioration caused by multidimensional factors. According to the economic literature, to cope with such a crisis, it is recommended to adopt a long-term spending cut-based fiscal consolidation program rather than a tax hike-based one. However, as the fiscal crisis evolved recently in Brazil, this article brings another perspective to the policy stance. It suggests a fiscal program that includes a combination of spending cuts and tax hikes. On one hand, the peculiarities of the Brazilian government expenditures demand fiscal reforms with long-lasting impacts but generally with low short-term fiscal effect. On the other hand, as short-term fiscal results anchor confidence, increases in taxes would be an important pillar of the economic policies to mitigate the fiscal deterioration in the short term. The GDP contraction is expected to more severe than a simple spending cut measure but is likely to be less prolonged.

JEL Classification: H30; H60; H12; H61.

Keywords: Fiscal crisis Brazilian Economy Fiscal Adjustment Fiscal Consolidation Program