Development demands efforts in these three areas, economists say in a publication by CDPP
Valor International
The Brazilian economy fell again in a familiar trap, a combination of low and intermittent growth, high interest rates, and constant risk of inflation, disappointing productivity, still high poverty levels, and very high inequality. Ideas for escaping this vicious cycle are plentiful, but they generally focus on only one of these aspects, hoping that the others will resolve themselves in a domino effect.
Showing that all these problems are interconnected, and so are the solutions, is a key feature of “Caminhos do Desenvolvimento: Estabilizar, Crescer, Incluir” (Paths to Development: Stabilize, Grow, Include), a four-volume publication from the Center for Public Policy Debates (CDPP), whose members include researchers from various fields, especially economists, with experience in the corporate and the public sector.
Three volumes are dedicated to a specific field of problems: Fiscal, Productivity, and Social. The fourth volume is a collection of abstracts. The publication was edited by economists Marcos Mendes, from Insper, Fernando Veloso, from the Institute for Mobility and Social Development (IMDS), and Vinícius Botelho, former secretary of the Ministry of Social Development and the Ministry of Citizenship. In addition, 53 authors contributed chapters.
The project was conceived to explore the feedback loop between these three domains. Low productivity accentuates the government’s budgetary limitations, since its main result is less growth, which leads to less revenue. Conversely, this situation and a large public debt reduce the capacity for investment, both public and private, stifled by a high tax burden and a sluggish market. Finally, part of the unmet demand for social policies is due to the poverty of a country that cannot produce and distribute wealth satisfactorily.
“These three weaknesses form a circle and have been trapping Brazil in low growth for decades,” summarizes Mendes. “We are bringing these proposals to rebalance these three dimensions. And we are doing this at this very moment because we are about to enter an electoral cycle, when the debate is conducted in a very superficial way, even more so in times of high polarization.”
In addition to the proposals and analyses, the publication also contains a warning: the fiscal situation is currently the most serious in periods without crisis. Only between 2014 and 2016, or during the COVID-19 pandemic, was there greater fiscal tightening. This means that, with the current level of real interest rates (adjusted for inflation), the fiscal adjustment needed to stabilize public debt growth is around 4% of GDP, something difficult to achieve without major repercussions.
“The debt is growing rapidly, and no one can say how far it might go. But certainly, an external crisis, any shock, external or internal, could lead to price increases, currency devaluation, and capital flight,” says Mendes. “There could be an explicit default on the debt or an implicit default, through inflation.”
In the introduction to the volumes, the three editors emphasize what goes beyond the strictly economic, invoking the concept of “distributive conflict.” The expression refers to a political reality in which different interest and power groups seek to control portions of the public budget or ensure that legislation favors them, to the detriment of society as a whole.
Part of this is revealed, in detail, by a curious fact: about 10% of the federal government’s primary expenditure is currently allocated to the payment of court judgments against the government itself. The fiscal cost of litigation is estimated at about 2.5% of GDP. “There is plenty of room to resort to the Judiciary, whether in contracts, in the actions of unions, or in social policies. Just look at the growth in the volume of court-ordered payments. [The volume of] legal actions against the state is growing, and it lacks the capacity to defend itself, which is creating an industry with specialized law firms,” Veloso says.
Botelho adds the example of litigation involving the Continuous Cash Benefit (BPC), which was the subject of a lawsuit just 15 months after being regulated by law. “It is normal if there is some litigation of public policies, but what happens in Brazil is that many times those who need it most are not the ones who go to court, which harms the targeting of the policy.”
The case of proposals to constitutionalize the limitation of expenses, through the “spending cap” (as the New Fiscal Regime, introduced in 2017, became known) and, later, the new fiscal framework (2023) is emblematic. Both attempts to induce, with one stroke of the pen, social actors to reach consensus on where it is worthwhile or not to put taxpayer money, “were swallowed up by pressures for more spending and benefits”—the private prevailing over the public.
“The idea of a social pact that introduces a rule like a cap or framework is exhausted in Brazil. There won’t be a pact like that,” laments Mendes. “It’s worth remembering that when Antonio Palocci took over the Ministry of Finance in 2003, there was an agreement with the International Monetary Fund for a primary surplus above 3% of GDP. Palocci announced that he would achieve a result above 4% of GDP, and he did it, without needing any regulation.”
Therefore, the editors warn that the most difficult part of implementing their proposals “lies with politics: weaving the social cohesion necessary to enable agreements to limit privileges and pressures so that, gradually, we can get out of the trap of low growth.” However, according to them, “transforming the vicious cycle into a virtuous cycle requires difficult political coordination.”
In the first volume, dedicated to fiscal reforms, one of the most mentioned principles is that of decoupling spending from revenue. The immediate effect would be to relieve the fiscal pressure that occurs almost automatically. The most evident example, for the editors, is the relationship between social security benefits and the minimum wage. If the benefits were adjusted for inflation, the savings would be 0.1% of GDP in the first year, which may sound low. After ten years, however, the estimated impact would be between 1% and 1.2% of GDP. Another decoupling is proposed by Mendes. As with social security, this involves allowing for the adjustment of the spending limits of the autonomous branches of the State (Judiciary, Legislative, Public Prosecutor’s Office, and Public Defender’s Office). With the change, the regulation in force before the introduction of the new fiscal framework, which limited real growth of expenses to 2.5%, would come back into effect.
“From a fiscal policy standpoint, the problem today is not indexation, but over-indexation, because there are contracts and public policies adjusted above inflation. Indexation is widespread in the economy, in legislation on rent adjustments, and in salary adjustment clauses. This is certainly a factor [leading to] resilient inflation,” Mendes said.
The reform proposals aimed at increasing productivity are found in the second volume. It addresses topics ranging from credit supply, with emphasis on the possibilities brought by open finance, to trade policy, including simplified tax regimes, such as the presumed profit and the Individual Microentrepreneur (MEI) regimes, and other “differentiated” regimes, which reduce the tax burden on specific sectors, introducing distortions.
In this volume, the potential for economic growth and increased productivity brought by the energy transition and the green economy in general are highlighted. Brazil, whose energy mix is reasonably clean, needs to better integrate into global value chains to capture global demand for goods produced in a more environmentally friendly way, as pointed out in the chapter by Clarissa Lins, Guilherme Ferreira and Bernardo Corrêa, partners at Catavento Consultoria, which specializes in ESG.
The potential of forest restoration as a “regional and national development strategy” is the subject of a chapter authored by João Pedro Arbache, Juliano Assunção, and Gabriela Zangiski of the Climate Policy Institute (CPI). Restoration allows for “replacing low-return activities with more productive land uses” and, ultimately, “ensuring climate and hydrological stability for the economy, repositioning Brazil as a global leader in the climate agenda.” In carbon pricing alone, the economic impact over 30 years is estimated at between $320 billion and $800 billion.
One point stands out: the continued subsidies for coal-fired power plants, which use the fuel that emits the most greenhouse gases and accounts for less than 3% of Brazil’s electricity mix. Even so, in recent years contracts with these plants have been extended, involving subsidies estimated at R$1 billion per year until 2040. Subsidies for more modern forms of electricity generation are also a double-edged sword. Incentives for distributed and small-scale solar generation have been successful in rapidly expanding this modality. However, a side effect has been the considerable participation of intermittent and inflexible sources, which introduces greater risk in the sector.
The volume focused on social policies is the third, but in a way it is first in chronology, since the project that would result in “Caminhos do Desenvolvimento” was born in 2020 as “Programa de Responsabilidade Social” (Social Responsibility Program), also published by CDPP and edited by the same three economists. “This work became a bill that is in Congress. It had other developments beyond the current study,” reports Veloso.
Before presenting the proposals, the key point is the diagnosis: the effectiveness of the programs is decreasing. Today, the results of many initiatives aimed at alleviating poverty and promoting social or professional inclusion fall short of their cost. Part of the reason stems from distortions such as litigation and the urgent nature of several initiatives. But there are also problems such as the lack of a strategy for the definitive overcoming of poverty, the authors point out.
Among the proposals, the most comprehensive is the redesign of existing policies, merging programs and reforming the unified registry of social security benefit recipients. According to Botelho, the main approach of the Brazilian government to eliminate poverty are cash transfers, allocating R$270 billion in 2025 for this purpose. However, cash transfer is a strategy with limited reach. “While it focuses on the vulnerability of households, productive inclusion depends on the identification of potential that is often not even evaluated in the administrative records of social programs,” he warns.
The economist Naércio Aquino Menezes Filho, from Insper, emphasizes in his chapter the importance of policies aimed at early childhood, recommending the creation of mechanisms to monitor the policies aimed at this population, in order to “identify children who are not being served by programs that they could access.” For Menezes, it is necessary to combine the various existing programs more efficiently.
Link da publicação: https://valorinternational.globo.com/economy/news/2026/03/24/growth-and-inclusion-require-better-fiscal-productivity-and-social-policies.ghtml
As opiniões aqui expressas são do autor e não refletem necessariamente as do CDPP, tampouco as dos demais associados.
