Tuesday, April 3, 2012

Brazil’s Stimulus Gamble

When a national economy is already growing faster than can reasonably be expected, attempts at further stimulus tend to lead to stagnation.

We’ve seen this in the United States, where the current state of the economy is the result of 14 years of non-stop stimulus efforts. Now Brazil is about to try the same thing. New tax cuts designed to boost business and hiring in Brazil are similar in scale and intent to the U.S. investment tax cuts of 1998. The result, I predict, will be similar: taking an economy that was rolling along nicely and throwing it off balance for years to come.