Fiscal Sustainability and Monetary Versus Fiscal Dominance: Evidence From Brazil, 1991-2000
IMF Working Papers, January 1, 2002
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- Fiscal Sustainability and Monetary Versus Fiscal Dominance: Evidence From Brazil, 1991-2000
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Bibliographic details
- Authors: Evan C Tanner, Alberto M. Ramos
- Published: January 1, 2002
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451842197.001
Key findings
- Under a monetary dominant (MD) regime, the primary surplus adjusts to limit debt growth, permitting monetary policy to be conducted independently of fiscal financing requirements.
- Some evidence favors an MD regime for 1995–97, but not for the decade of the 1990s as a whole.
- Fiscal adjustments of 1999 yielded a primary surplus of about 3 percent of GDP, consistent with solvency.
- A credible MD regime would require further adjustments of the primary surplus if debt increases, growth falls, or interest rates rise.
Evidence and analysis themes
- Evaluation focuses on Brazil during 1991-2000, with particular attention to 1995–97 and fiscal adjustments in 1999.
- The analysis links primary surplus behavior to debt dynamics and the independence of monetary policy.
- Consideration of scenarios where debt increases, growth falls, or interest rates rise as triggers necessitating additional primary surplus adjustments.
Policy implications and recommendations
- Maintain or strengthen primary surplus adjustments to limit debt growth to sustain solvency.
- Recognize that temporary fiscal adjustments (such as 1999’s) may be insufficient: further consolidation could be required under adverse developments (higher debt, lower growth, higher interest rates).
- For monetary policy to operate independently (MD regime), fiscal policy must credibly commit to surpluses that stabilize or reduce public debt given prevailing growth and interest-rate conditions.
Key statistics and identifiers
- Period analyzed: 1991-2000
- Subperiod with favorable MD evidence: 1995–97
- Primary surplus after 1999 adjustments: about 3 percent of GDP
- Pages: 30
- Series: Working Paper No. 2002/005
- Issue: 005
- Volume: 2002
- ISBN: 9781451842197
- ISSN: 1018-5941
- DOI: https://doi.org/10.5089/9781451842197.001
Evan C Tanner and Alberto M. Ramos, "Fiscal Sustainability and Monetary Versus Fiscal Dominance: Evidence From Brazil, 1991-2000", IMF Working Papers 2002, 005 (2002).