Macroeconomic Impacts of a User Fee Policy for Public Infrastructure in Brazil

Abstract

This paper analyzes in a recursive macroeconomic model, calibrated to the Brazilian economy, the growth and welfare effects of public expenditures under two alternative modes of financing: the traditional tax-collection mechanism and a user fee for public infrastructure. According to the model-based simulations, when public transfers to household are not allowed to decrease, there might exist substantial welfare net gains if the government increases its revenue by charging a higher user fee for public infrastructure, as long as this policy comes with a reduction in private capital taxes or tax incentives to private infrastructure.