Sustainability of Brazilian public debt: analysis of a possible structural break in the recent period

Abstract

Campos and Cysne (2019a) use the multicointegration method to analyze the behavior of Brazilian public debt between 1997 and 2018. The authors observe, in this previous work, the necessity of evaluating the existence of a structural break along the sample, corroborating assumptions originated from the political cycle. This paper evaluates that possibility, and identifies its possible effects on the sustainability of the public debt. The conclusion regarding the unsustainability of the debt/GDP ratio is confirmed. But here we are able to identify the precise date as of which the debt trajectory becomes unsustainable. Using a technique which allows for a structural break has two additional advantages with regard to Campos and Cysne (2019a). First, it enables the comparison of the models before and after the break. Second, to a certain extent, it includes the possibility of comparisons with previous empirical works based on variable-coefficient methodologies [e.g. Campos and Cysne (2019b)].