Effects of the rural credit subsidy on economic growth and welfare of Brazilian regions
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The objective of this paper is to evaluate the impact of government spending with the
Interest Rates Equalization (IRE) policy on the economic growth of Brazilian regions.
Additionally, it aims to measure the opportunity cost of the subsidy in relation to an
alternative application in the transportation sector. The model, database, and software from
the General Equilibrium Analysis Project of the Brazilian Economy (PAEG) are applied to
the simulations. The result shows that the IRE policy provides economic growth in the
Midwestern, Northeastern and Southern regions above the cost of the policy. Besides, in the
Northern and Southeastern regions, there is a decrease in the GDP. For Brazil, the policy is
cost-effective and offers a 34% rate of return. Furthermore, all regions benefit in terms of
welfare. For the country, in terms of GDP or welfare, spending on the IRE has negative
alternative rate of return when applied to the transportation sector. The IRE policy is efficient
and contributes to reduce regional disparities.