Debt and austerity: international evidence and the case of Brazil

Resumo

^{The term austerity indicates a policy of sizable reduction of government deficits and stabilization
of government debt achieved by means of spending cuts or tax increases, or a
combination of both. In this paper we ask two questions with an eye on the case of Brazil:
what type of austerity policies can achieve the fiscal goals at the lowest costs in terms of
output growth, and what are the electoral effects for governments implementing them?
If governments followed adequate fiscal policies most of the time, we would almost never have
a need for austerity. Economic theory and good policy practice suggest that a government
should run deficits during recessions – when tax revenues are lower and government spending
is higher due to the working of fiscal stabilizers such as unemployment subsidies. These
deficits should then be balanced by surpluses during booms, when spending needs are lower.}