THE BRIDGE TO STAGNATION: GOVERNMENT EXPENDITURE CAP, REFORMS AND THE FALL IN THE BUSINESS INVESTMENT SHARE IN BRAZIL, 2015-2022
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Abstract
The paper assesses the change in direction of economic policy in Brazil during the period from 2015 to 2022 towards fiscal austerity and social security pensions and labor market reforms, allegedly with the purpose of opening space for an acceleration of growth led by private investment and net exports, through reduction in the real interest rate and a more depreciated real exchange rate. Although the interest rate has fallen and the exchange rate has indeed depreciated, we show that these policies did not increase the grow of exports and led to a reduction in the absolute size of the internal market and to a decrease in the business investment share. Although it was a failure to stimulate growth, the new policy regime was successful in achieving its actual political objectives: The reduction of the relative size of the State in the economy, the weakening of the bargaining power of workers and the decrease of the wage share.
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References
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