Synthesis of the Brazilian Economy

BRAZIL ECONOMICS - Report 10 Jun 2024 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

OVERVIEW

SPENDING VOLUME DOES NOT SUBSTITUTE FOR EFFICIENCY IN ITS USE
A project for the country, not a lavish distribution of public money, is what the nation has needed since January 2023. If we were facing a severe recession, with high unemployment and weak demand, some fiscal stimulus would be welcome. Labor market data has been showing signs of heating up for some time, and the recently released GDP indicates that demand is strong, partly met by increased imports. However, the cost of the government's chosen option is rising, reflected in gross debt persistent expansion, both present and future, affecting exchange rates, interest rates, and expectations. The problem lies not in the government's communication but in its modus operandi.

LIMITS TO INCREASING REVENUE
The "logic" of the fiscal framework, which should ensure fiscal discipline, rests on the assumption of public spending growth supported by revenue growth. Reality shows, to the surprise of few, that it's easier to talk and write than to implement such a proposal. The country has one of the highest tax burdens among its peers (32.4% in 2023), approaching that of OECD countries, and more than 10 percentage points above that of Latin American countries.

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