Fiscal multipliers, public debt and economic cycle: SVAR and MS-VAR models for the Brazilian economy in the period 1997-2018

Abstract This study evaluates the capacity of fiscal policy to smooth the Brazilian economic cycle. Therefore, multipliers are estimated for disaggregated fiscal variables. Considering the positive impacts of fiscal policy on economic activity, production responses to shocks differs between the recessive and expansive phases of the cycle from 1997 to 2018. In terms of economic policy management, the results reveal that aggregate demand stimuli are more appropriate in the context of a recession. Finally, the authors show that the inclusion of net debt in the model’s equations does not affect how shocks behaver in the SVAR. However, although it modifies some of the MS-VAR results, it is not a predominant variable for the magnitude of the fiscal multiplier, since cyclical fluctuations prevail over the size of the fiscal impulse.