The Impacts of the Expenditure Ceiling on Public Investment and the Basic Interest Rate: a synthetic control analysis
Abstract
The Expenditure Ceiling, in effect from 2017 to 2022, marked an important period in Brazilian fiscal policy and sparked numerous debates about its impact on macroeconomic variables. Using the Synthetic Control method and annual data from the World Bank and IMF, this article assesses its influence on the central bank policy rate (Selic) and the real rate of public investment between 2017 and 2019, before the pandemic.
The results indicate that the implementation of the Expenditure Ceiling coincided with a decline in the Selic rate, consistent with previous findings related to long-term and neutral interest rates. However, when analyzing public investment, it becomes challenging to isolate the specific effect of the Expenditure Ceiling, given the substantial reduction in government investments caused by the 2015-16 recession.
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Copyright (c) 2024 Vinícius de Almeida Nery Ferreira, Geovana Lorena Bertussi
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