Correção monetária e o equilíbrio do orçamento

Abstract

The purpose of this paper is to examine the government budget balance mechanism in Brazil. It extends the work of Issler and Lima (2000) given that budget deficits can be eliminated by unexpected reductions in the indexed inflation compensation on the debt besides increases in taxes or reductions in spending. Therefore, it examines the temporal causality of expenditures, taxes, and monetary correction. Although Tanner (1994 and 1995) takes into account the role of indexation, his work can be improved in two directions. First, instead of considering the monetary base variation as a component of the stock of the debt, monetary base variation and taxes should be summed up.Webelieve that this would be more appropriate given that seigniorage is important for the Brazilian government solvency. Second, the non-indexed debt and the indexed debt should be considered separately in order to obtain a better characterization of the dynamics of the debt. Evidence shows that, for the 1965/93 period, reductions in real indexation followed increases in government spending. These reductions, however, were followed by increases in the real growth of the debt (indexed and non-indexed). In other terms, people kept buying public bonds despite the implicit default but in order to do so they demanded higher interest payments. Finally, increases in taxes followed increases in government expenditures given support to the spend and tax hypothesis.