Distributive effects of increase in public investments in infrastructure in Brazil

Abstract

The main purpose of this paper is to analyze macroeconomic and welfare effects among alternatives for financing public infrastructure investments in Brazil, considering heterogeneous families in terms of labor productivity and credit access. In the model there are two agents’ types (p and q types) that attribute utility to public goods. The p-type has lower productivity and does not have access to capital, but both receive government transfers and pay taxes on consumption and labor income. The calibration data were obtained from National Accounts and PNAD. There are 16.73% of p-type families and 83,27% of q-type, these families have a monthly average per capita income of R$ 552,78 and R$ 1.156,71, respectively. Three policies were proposed in order to reproduce the public investment/GDP ratio of 3.75% in the long term obtained by Santana, Cavalcanti and Paes (2012). The results of the simulations showed that if there is a combined decrease in government consumption/GDP (2.26%) and transfers/GDP of type-agent q (4.67%) in order to raise public infrastructure guarantees a common welfare gains for all families.