Studies in Fiscal Federalism and State-local Finance series
Chapter 5: Fiscal stabilization, subnational fiscal indiscipline and institutional reform in Brazil
This chapter discusses improvements in fiscal accounts and public debt-to-GDP ratios in Brazil at the national and state levels and takes a closer look at economic policies and the politics of institutional reforms from 1990 to 2006. In a nutshell, I argue that the general improvements in Brazil’s fiscal stance and public indebtedness can be explained by the government’s commitment to budgetary institutional reform, changing incentives for budget actors, both on the national and the subnational level. Under initially soft budget constraints, the high level of vertical fiscal decentralization in expenditure led to increasing fiscal problems and debt accumulation on the subnational level, creating liabilities for general government finances. After the government decided to implement stronger fiscal rules between 1997 and 1998, the subnational governments finally reached and maintained balanced budgets.
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