Assessing the Impact of Distributive Policies on the Brazilian Economy Using an Scge Model

Abstract

This study investigates the impact of macroeconomic policies on the Brazilian economy. We present a two-sector, open-economy, Structuralist Computable General Equilibrium model that distinguishes among three economic classes and assumes no financial sector. The Social Accounting Matrix for Brazil in 2006 serves as a benchmark for our model. We compare the medium-run effects of five experiments: an income transfer towards formal workers, a transfer to informal labour, an investment shock, an exchange rate depreciation, and a policy mix that combines (exchange rate) depreciation with income transfer towards modern (sector) workers. The policy measures reinforce each other in terms of their potential to enhance growth. Our findings underscore the importance of redistributive policies to foster economic expansion.

Brazilian’s structural change and economic performance: structuralist comments on macroeconomics policies

“…The transfer of workers from the informal sector (a low labour productivity sector) to the formal sector (a high labour productivity sector) boosts labour productivity in the whole economy (Rada 2007, Morrone 2015a. Having a higher capital-labour ratio, the formal sector can increase the productivity of each additional worker.…”

“…First let us begin presenting the model in level and growth terms. The antecedents of the model are Rada (2007Rada ( , 2012 and Morrone (2015a). Next we exhibit the data.…”

“…The remaining income is separated between the two goods, in this case, (1 − α) and (1 − β). For more details, see Morrone (2015a).…”

“…A similar procedure was adopted to aggregate the set of formal activities into the formal sector. (For more details, see Morrone (2015a)). In this study, the informal sector was defined as a subdivision of the household sector in the System of National Accounts -SNA, characterized by a particular way of organizing the production and an unclear division between labour and capital.…”

“…In other words, the output level rises in response to a change in aggregate demand for the formal sector. (For more details about the model and for information on price determination, see Morrone (2015a)). …”