Brazilian fiscal policy
Fiscal policy refers to use of government revenue collection and expenditure to influence its economy. Fiscal policy targets a country’s budget of its economic activities. Government can adjust its spending and taxation levels through changing the income distribution, resource allocation or level of aggregate demand and economic activity. In the context of Brazil, in 1970s, the government put some stringent penalties to regulate its imports. The government kept the import tax and penalties high. To implement the policies, the government applied tax deduction on imports, for instance, a Brazilian resident who imported intangibles like knowhow, software and royalties would be subject to withholding tax from remittances, this was equivalent to 25% of an individual registered capital. If a Brazilian taxpayer bought software from abroad, worth £100, the seller would be receiving £15 while the £85 would be remitted to the government. Brazilian tax rule treated any payment of intangible imports as a profit distribution regardless of their justification. This meant that in any importing individual or company would pay more than its income a year (Poterba, 1999). Q2 Policy impact
The policy was set to discourage imports and promote the countries’ economic activities by ensuring that companies like Commutronics, which had their operations in the country were purchasing materials from within instead of importing. The policy would benefit domestic companies since companies like Commutronics Do Brazil (CdB) who had to use the local supplies and services bought from them. Such a fiscal policy would work for the interest of Brazilian economy, commodities, which could fairly be bought from their domestic market instead of importing would be reduced their in imports, particularly for luxurious items, and products whose substitutes are available in the local market. In 1970s, Brazil’s export sector was affected by...