The Nature of Government Finance in Brazil
Posted: 2 Feb 2015
Date Written: April 25, 2009
The aim of this paper is to focus on the institutional process by which the Brazilian government spends, borrows, and collects taxes. I am going to evaluate the conventional view that taxes finance government spending, that bond sales are financing operations, and that the Brazilian federal government is operationally constrained. This view arises from a misunderstanding of both treasury and central bank operations. Balance sheets are used to show the reserve effects of the treasury and central bank operations and to explain the cooperation between the central bank and the treasury. It concludes that logically taxes and bonds can not finance government spending and that a sovereign government that issues its own non convertible currency can not become insolvent.
Keywords: fiscal policy, monetary operations, monetary policy, government liabilities
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