The effects of exchange policy on public finances

ABSTRACT The study measures the direct effect of exchange policy on public finances in Brazil in the period 1985-1988. With the aim of measuring exchange policy effects, the change of real exchange rate vis-à-vis the American dollar will be used. The compilation of all public revenues and expenditures, affected by exchange rate changes, as well as their consolidation, was performed. For this purpose, the public sector balance of payments was drawn from actual data and, in their absence, from estimates. The survey concludes that the relationship between the Brazilian public sector and external sector, governed by the high external indebtedness determines a negative direct impact response of the public sector fiscal deficit to a real depreciation of the foreign exchange rate.