On Brazil

Bolsonaro’s economy

[…] the incoming administration would be a more radical version of the neoliberal post-coup government of the last two years. They are trying to negotiate social security reform, meaning cutting off benefits, and partial privatization, before the end of the year to avoid the political costs associated with it. That on top of the labor reform that was approved last year. The notion is that one would allow for higher savings, since people would be forced to save for retirement, and the other would allow for lower wages, with one leading to higher investment and the other to higher employment. Of course, the logic behind that is hard to sustain, and the evidence regarding this kind of structural reforms is very clear about their failures. Expect lower wages, and higher poverty in old age. And no growth.

The End of Brazilian Democracy
By: Matias Vernengo – Bucknell University

The evolution of inequality in Brazil

Over the last 15 years Brazil instituted a new system of family allowances (Bolsa Familia) and increased the minimum wage both of which lead to economic growth and an unexpected fall in poverty. But the structural fiscal backwardness of the country (indirect taxes rise to 30% on electricity bills, whereas top inherited wealth is taxed at 4%) was never dealt with and as a result the reduction in inequality has been made at the expense of the middle classes and not the richest categories.

Brazil: the First Republic under threat
By: Thomas Piketty – Ecole d’économie de Paris

A household debt boom that lead to a severe recession

Brazil experienced one of the most severe recessions in its history from 2014 to 2016. Garber and al. found that it was preceded by a substantial increase in household debt from 2003 to 2014:

In particular, the boom from 2003 to 2011 was widespread across the types of debt with auto debt and payroll loans playing a particularly important role. Further, this was a period of inclusion into the credit markets of lower income individuals. However, the credit boom after 2011 was different; it was driven primarily by government bank lending via mortgages and payroll loans, and there was a lack of further inclusion of lower income individuals.

Household Debt and Recession in Brazil
Authors: Gabriel Garber, Atif Mian, Jacopo Ponticelli, Amir Sufi
From: Central Bank of Brazil, Princeton University, Northwestern University, University of Chicago