{"id":10023,"date":"2024-12-29T14:05:44","date_gmt":"2024-12-29T17:05:44","guid":{"rendered":"https:\/\/eseg.edu.br\/blog\/politica-fiscal-o-que-e-como-funciona-e-suas-consequencias\/"},"modified":"2026-05-12T00:23:23","modified_gmt":"2026-05-12T03:23:23","slug":"fiscal-policy-what-it-is-how-it-works-and-its-consequences","status":"publish","type":"post","link":"https:\/\/eseg.edu.br\/en\/blog\/politica-fiscal-o-que-e-como-funciona-e-suas-consequencias\/","title":{"rendered":"Fiscal Policy: what it is, how it works, and its consequences."},"content":{"rendered":"
\n
\n
\n
\n
\n

Fiscal Policy: what it is, how it works, and its consequences.<\/h1>\n<\/p><\/div>\n<\/p><\/div>\n
\n
\n

By Professor Caio Andrade, from ESEG<\/h2>\n<\/p><\/div>\n<\/p><\/div>\n
\n
\n

A <\/span>fiscal policy<\/b> It is one of the fundamental pillars for the administration of a country because it defines how the government manages resources and meets the demands of the population. But, <\/span>What is fiscal policy?<\/b> And what are its consequences for the economy and society? Let's explore this essential topic, focusing on its direct impacts on the daily lives of citizens.<\/span><\/p>\n

What is fiscal policy?<\/b><\/h4>\n

When we talk about <\/span>fiscal policy,<\/b> We are basically referring to how the government organizes its spending. Governments around the world have a number of demands and obligations, many of them mandated by law: managing the health system, education, the environment, pensions, public employee salaries, subsidies for certain business sectors, and even funding cultural activities.<\/span><\/p>\n

The organization of <\/span>fiscal policy <\/b>It can be done more or less efficiently, depending on how the government allocates resources and sets priorities. However, there is always a chance of a <\/span>fiscal imbalance <\/b>which could have serious consequences for the country.<\/span><\/p>\n

Interested in studying abroad? Check out ESEG's international department!<\/strong><\/a><\/p>\n

Fiscal policy imbalance<\/b><\/p>\n

If a government spends more than it collects in revenue\u2014that is, if the resources allocated by the state are greater than the tax revenue\u2014the government will run a deficit and will need to expand its public debt. Virtually all governments in the world have some degree of public debt; that is, they sell government bonds promising to reimburse buyers, with interest, after maturity.<\/span><\/p>\n

In general, "lending" to the government is a safe investment, as it is very difficult for a government to go bankrupt. However, if government debt increases significantly, the market perceives a risk, and this puts upward pressure on interest rates. With high interest rates, in addition to the increased cost of debt, there may be a shortage of credit, making it increasingly expensive for businesses to borrow from banks and finance their investments, generating a looping effect.<\/span><\/p>\n

In short, when a government spends too much, far exceeding its revenue, there can be serious consequences for the country's economy and the population in general.<\/span><\/p>\n

++ 98% of ESEG graduates are entrepreneurs or work in recognized companies; learn more about our Career Center.<\/strong> <\/a><\/p>\n

Consequences of an unbalanced fiscal policy<\/b><\/h4>\n

If public debt grows uncontrollably, the consequences can be severe. Among the main impacts are:<\/span><\/p>\n

    \n
  1. Interest rate increase<\/b>:<\/span>
    <\/span>With a higher perception of risk in the market, interest rates can skyrocket and make credit more expensive \u2013 both for the government and for citizens. This makes it difficult for businesses and citizens to access financing, limiting investment and consumption and harming economic growth.<\/span>\n

    <\/span><\/li>\n

  2. Currency devaluation and dollar appreciation<\/b>:<\/span>
    <\/span>With a very high public debt, foreign investors believe that the country is not a good place to invest. This generates what is called... <\/span>flight of investment<\/b>, This results in a shortage of dollars in the country and devalues the national currency. This movement makes imported products and inputs more expensive, putting pressure on inflation.<\/span>\n

    <\/span><\/li>\n

  3. Inflation and loss of purchasing power<\/b>:<\/span>
    <\/span>Excessive public spending can contribute to rising inflation, which negatively affects the purchasing power of the population, especially the most vulnerable classes.<\/span><\/li>\n<\/ol>\n

    How to manage fiscal crises?<\/b><\/h4>\n

    When a <\/span>fiscal crisis <\/b>As this happens, the government needs to reassess its priorities and seek alternatives to reduce spending without significantly harming public services and while continuing to meet social and economic demands. It is necessary to establish priorities and thoroughly review spending to analyze where it is possible to minimize social impact.<\/span><\/p>\n

    Some strategies include:<\/span><\/p>\n