Public investment in Brazil and its relationships with business cycles and fiscal regime

Abstract This article examines trends in Brazilian public investments and how they relate to business cycles and fiscal regime. The approach of Auerbach and Gorodnichenko (2012) is used to estimate fiscal multipliers that may change according to the business cycle. Public investment multipliers estimated for Brazil may reach high values during recessions (above 2) and much lower values in booms (at most 0.8). These results support the use of public investments as an instrument of anti-cyclical policy also in addition to the claim that cutting such investments during economic crisis as in the year 2015 has strong unfavorable repercussions. Finally, the article explores the main factors that lie behind the change towards a falling trend of public investments since 2011 with a particular emphasis on the role of the fiscal regime.