Abstract

CASAGRANDE, Elton Eustaquio  and  VAZ GARCIA, Renato. Fiscal policy contradiction: a perspective on Brazil and Mexico. Inv. Econ [online]. 2011, vol.70, n.277, pp.127-152. ISSN 0185-1667.

The aim of this paper is to discuss the quality of fiscal policy in Brazil and Mexico and investigate whether fiscal policy influence is favorable to reduce the unemployment rate. Public spending, which has a positive effect on the level of employment when results in additional aggregate demand, may cause a negative effect on employment, if its financing depends in persistent high interest rates. Brazil and Mexico have engaged in a long effort to control public spending and to reduce the public deficit to zero. Does this policy bring a positive result to the economic activity no matter how actual public deficit has been financed? We select variables related to public budget as public sector borrowing requirements, taxes, public debt and others to form a data base. The fiscal institutional arrangement and de data allow us to evaluate the fiscal policy as a whole and to discuss the importance of credibility and reputation of the government.

Keywords : fiscal policy; public debt; public expenditure; employment.

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