This paper investigates the relationship between the fiscal multiplier and disguised unemployment in Brazil, focusing on the effectiveness of fiscal policies in scenarios of underutilization of the workforce. Based on a review of pre-existing literature for calculating disguised unemployment in Brazil and the application of a vector autoregressive (VAR) model, the impacts of fiscal shocks on GDP and the rates of open and disguised unemployment were analyzed. Data suggests the existence of disguised unemployment in Brazil, especially in the traditional services sector. In addition, the results indicate that investment and other expenditures shocks have the highest positive fiscal multipliers, while payroll expenditures have a negative impact. Finally, the analysis also highlights that fiscal policies aimed at increasing income transfers could be a viable way of reducing disguised unemployment.
Keywords: Fiscal multiplier; Disguised unemployment; Fiscal policy; Labor market
JEL classification: E24 E26 H30 J01 J64
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