Fiscal reaction and public debt: A panel data approach for Brazilian states

Abstract

The objective of the research was to analyze whether there is an active behavior of generating primary surplus in response to an increase in public debt by the governors of Brazilian states. For this purpose, the panel data method with fixed effects and White’s robust estimators was used for the period from 2001 to 2019. The results were consistent with the literature and indicated the presence of positive effects between debt/GDP and surplus/GDP. Additionally, distinctions were observed in the fiscal reactions of states belonging to different income-based regional groups in Brazil. Regarding the subgroup of states with debt/GDP above the median, only the states in the South, Southeast, and Midwest regions reacted significantly and positively to increases in debt/GDP.