posted on 2019-11-27, 02:53authored byAloísio Araujo
Abstract Emerging countries tend to face recurring situations in which their debt has an explosive path. This makes the fiscal side key to understanding their economy behavior. In this article, we will review how we can model Brazil as a fiscally fragile economy. We define fiscal fragility as the circumstance in which unbalanced fiscal variables lead to multiple equilibria and speculative attacks. We will present several models in which the possibility of a debt crisis was essential to explain-and, in a way, predict-what was happening in the country. We believe that this situation is much more credible to occur than fiscal dominance.