Thriving Through Uncertainty: Fiscal Space for Sustainable Growth in Brazil

Abstract

The article analyzes the possibilities for creating fiscal space for public investment in infrastructure in Brazil. We present the institutional framework under which fiscal policy is conceived and the budget characteristics that have limited the government´s capacity to invest: high participation of earmarked expenditure, reliance on tax revenues, a tax burden considered too high for the country´s income, and high levels of debt. In the last few years, labor force qualification and problems with infrastructure have become the main restrictions on sustainable growth in Brazil. We argue that, given the limitations presented and the high participation of the public sector in funding infrastructure projects, public and private, public investment will remain low in Brazil in the mid-term. The policy debate on how to raise the country´s investment rate should be more pragmatic and focused on attainable goals.