Fiscal and macroeconomic effects of the constitutional amendment to the spending ceiling (No. 95/2016)
Abstract
This paper investigates the effects of the Constitutional Amendment No. 95/2016 on fiscal management, economic growth, and families’ welfare. It uses a dynamic general equilibrium model with heterogeneous agents. The model includes congestion in the government’s offer of consumer services to households and public capital to firms. Considering the population growth, the freezing of public spending proposed by EC 95/2016 could bring a strong reduction in the level of services offered to families, especially in the poorest strata. Alternative policies that allow the variation of public investments accompanied by compensation for losses by the poorest would not only generate allocation efficiency gains and improvement in the redistribution of income, but also the reversal of bottlenecks and sustained economic growth. The product of the economy would grow 9.2%, after 10 years of the EC 95/2016, driven by public investment.
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Copyright (c) 2021 José Weligton Félix Gomes, Ricardo Antonio de Castro Pereira, Arley Rodrigues Bezerra, Francisco Germano Carvalho Lúcio, Francisco Assuero Monteiro Saraiva
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