Government consumption, foreign interest and repressed investment: the problem of external debt revisited
Abstract
This paper analyses the evolution of Brazilian public sector expenditures during
the second half of the 1980’s. The interpretation according to which the fiscal crisis is
exogenous and caused by the external debt interest is criticized. The great increase in current
expenditures after 1984, together with a budget restriction that limited public investment is
discussed. Based on it, public sector consumption and not external debt interest payments is
considered the most important factor responsible for the public investment trajectory over
time during the last five years.
JEL Classification: F31; F34; H63.
Keywords: Public expenditure currency crisis debt crisis