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Title:External shocks, public sector disequilibrium and crowding-out in the Brazilian economy, 1970-1987
Author(s):Batista, Paulo Cesar de Sousa
Doctoral Committee Chair(s):Coes, Donald V.
Department / Program:Economics
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Economics, General
Economics, Finance
Economics, History
Economics, Theory
Abstract:The aim of this research is to investigate the hypothesis that the government may have interfered with the functioning of the private sector in Brazil, through the economic phenomenon which has been referred to in the economic literature as the "crowding-out" effect.
Our review of the crowding-out literature suggests a bias in the existing analyses and tests of indirect, short-run and financial types of crowding-out. The Brazilian experience indicates that further research should be directed to long-run, direct and real types of crowding-out. It implies a need for investigating more thoroughly the changes in the composition of government expenditures and deficits, alterations in the nature of the relationship between the public and the private sector, and the effects of the external shocks on the role of government and its economic impact.
Brazilian government expenditures and deficits have continuously accommodated a higher proportion of financial expenditures relative to real expenditures, which suggests a weaker impact effect of government programs and a higher degree of "fiscal illusion". These changes in the composition of expenditures and deficits, moreover, have triggered changes in the role of the government and in the nature of its relationship to the private sector. The Brazilian government has changed from being a net saver to a net spender of resources of the economy, in spite of the sharp reduction in real spending flows.
External shocks and the attainment of continuing trade surpluses have had devastating effects on the government's financial position. This contrasts with what the literature has called "international crowding-out". This type of crowding-out stresses an inverse causality, in which budget deficits, by affecting interest and exchange rates, crowd out the country's net exports. We identify four mechanisms which underlie the causal link between the external accounts and Brazilian budget deficits: (1) arbitrage between external and domestic interest rates, (2) the nationalization of the external debt, (3) the substitution of internal for external debt and the resulting internal transfer problems, and (4) the sectoral adjustment of the economy in the nineteen-eighties.
Issue Date:1990
Rights Information:Copyright 1990 Batista, Paulo Cesar de Sousa
Date Available in IDEALS:2011-05-07
Identifier in Online Catalog:AAI9026135
OCLC Identifier:(UMI)AAI9026135

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