Efficiency and Inequality: the role of infraestructure investments in Minas Gerais

Abstract

The goal of this paper is to project the impacts of infrastructure investments on growth and inequality in Brazilian regions. The Brazilian federal government has recently set out a detailed public expenditure program focusing on infra-structure investment – Programa de Aceleração do Crescimento (PAC). We investigate the sectoral, regional and national economic consequences of the PAC in Minas Gerais, as well as the leakage and spillover effects to other states of the federation. We base our analysis on a large-scale multirregional CGE model for Brazil. The model is both bottom-up and top-down: bottom-up for Brazil’s 27 states, and top-down for Brazil’s 558 microrregions. We model the PAC in detail, considering a set of expenditure programs under the 2008-2011 plan. We find that the PAC may accelerate growth in Minas Gerais, but may also contribute to an increase in regional inequality in the state in the long run.