The Brazilian fiscal adjustment: structural change and policy continuity, 1995-2004

Abstract

This chapter discusses fiscal adjustment in Brazil since macroeconomic stabilisation in the mid-1990s. It is argued that the authorities' growing awareness of the need for fiscal discipline was as important as the pace of structural reforms for understanding the dynamics of public indebtedness. Fiscal adjustment intensified after the abandonment of the exchange rate peg in 1999 to avoid a default on the public debt with certainly ruinous consequences for the economy. The chapter discusses the composition of fiscal adjustment, based predominantly on tax revenue hikes, against the backdrop of Brazil's still high public debt-to-GDP ratio, and concludes that the hard-won fiscal discipline will have to be entrenched in fiscal institutions and the quality of the fiscal adjustment improved to support higher and sustainable economic growth. © OECD 2006.