The Political Economy of Public Investments in Brazil

33 Pages Posted: 20 Sep 2015

See all articles by Marcus Andre Melo

Marcus Andre Melo

Universidade Federal de Pernambuco (UFPE)

Carlos Pereira

Getulio Vargas Foundation (FGV)

Date Written: May 10, 2015

Abstract

Brazil’s under-performance in the area of infrastructure is widely recognized by policymakers and country experts. By virtually any metric the country performs poorly in comparison to other countries in the same level of development (Velloso et al 2013). Along with education, deficient infrastructure puts a drag on productivity and is consequently a major impediment to growth. While there is virtual consensus on the need to upgrade the country’s infrastructure and no shortages of diagnoses of the current status of the country infrastructure, there is little understanding of the political economy of the investments in the sector. The consensus led to the prioritizing of infrastructure in the government agenda and the launching of the Programa de Aceleração do Crescimento (PAC) - a massive multiyear program costing some USD 0.6 trillion -, which has been characterized by serious managerial issues and tainted by corruption scandals. This report explores the political and institutional constraints holding back investments in infrastructure and the political and institutional factors explaining sub-optimal and socially inefficient outcomes in the implementation of public investment programs.

Rather than simply recognizing that poor infrastructure is an important constraint to economic growth and productivity, this paper focuses on why the political choices arose and persist that led to this state of affairs and even now refrain from the obvious solution of investing more in infrastructure. By factoring into the analysis the political and institutional dynamics, it is possible to identify which interest groups are affected by policy regarding infrastructure and which are the political actors involved in making those choices. By focusing on the preferences and relative powers of these groups and actors, as well as on the nature of their interaction, all of which are determined by political institutions, a clearer picture emerges of the determinants of policy choices and outcomes that emphasizes the trade-offs, restrictions and inter dependencies with other policy areas which are crucial given the ‘general equilibrium’ nature of those choices.

Keywords: infrastructure, Brazil, coalition management

Suggested Citation

Melo, Marcus André and Pereira, Carlos, The Political Economy of Public Investments in Brazil (May 10, 2015). Available at SSRN: https://ssrn.com/abstract=2662491 or http://dx.doi.org/10.2139/ssrn.2662491

Marcus André Melo

Universidade Federal de Pernambuco (UFPE) ( email )

Cidade Universitária
Cidade Universitária, Pernambuco 50670-901
Brazil

Carlos Pereira (Contact Author)

Getulio Vargas Foundation (FGV) ( email )

R. Dr. Neto de Araujo 320 cj 1307
Rio de Janeiro, Rio de Janeiro 22250-900
Brazil

HOME PAGE: http://ebape.fgv.br/en/faculty-members/carlos-pereira

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