Raphael Pinto Fernandes
Master's – Government Spending Multiplier and Regional Economic Growth: A General Equilibrium Analysis
Advisor: Prof. Dr. Eduardo Amaral Haddad
Comission: Profs. Drs. Fabiana Fontes Rocha, Fernando Salgueiro Perobelli and Alexandre Alves Porsse
Link YouTube: https://youtu.be/wWTO0RekWMU
The differences in growth rates and levels of economic activity between regions within a country motivated the search for strategies to reduce regional disparities. At the initial stages of development, the concentration of economic activity has a positive effect on national growth rates, while raising regional inequality. However, after reaching a certain level of regional concentration, increases in the latter would dampen national growth. Fiscal policy aimed at lagging regions configure as a regional policy for their development. Nonetheless, there is no consensus in the economic literature about fiscal policy’s role, and there are still limited studies quantifying the multiplier effects at the local level, especially in developing countries. The global financial crisis of the late 2000s revitalized this debate, given the inability of monetary policy to counter the falling of economic levels. From a regional perspective, the heterogeneity in the transmission of a fiscal impulse causes varied effects between regions within a country due to differentials in productive structure and interdependence. In this context, the objective of this thesis is to analyze the impacts of Federal Government spending on the Brazilian regional economic growth. Thus, we seek to answer which policies would generate the highest multiplier effect on output. This objective will be achieved through a computable general equilibrium analysis (CGE) for the Brazilian economy, which will measure the impacts from both the aggregate and the regional perspectives. In this sense, this thesis offers another perspective on the multiplier effect: at first, by calculating for each state its Federal Government Spending Multiplier; secondly, it decomposes the total multiplier in its intraregional effect and the interregional effect. Therefore, as a preview of results, we found that the multiplier is higher in more impoverished areas and sensitive to trade openness. Lastly, it provides evidence that there is no trade-off between mitigating regional disparities and fostering national growth, and consequently, government spending could be used for regional development.
*Abstract provided by the author