Isaac Kerstenetzky

Transportation and Inflation: A Study of Irrational Policy Making in Brazil

Although it has been argued that some aspects of the Brazilian inflation were favorable to economic development, and that many of the drastic distortions usually attributed to inflation were absent, 1 there exists one particular aspect of the Brazilian inflation which cannot be defended by any school of thought. This is the policies followed by the government in setting public utility rates, especially in transportation. In many countries suffering from inflation, rates charged for public utilities fall so far behind changes in the general price level that an increasingly important part of government expenditures are devoted to subsidizing the transportation system and other public utilities. With expenditure commitments for development programs rising faster than revenues that can be supplied by archaic tax systems, increasing subsidies to public utilities worsen government deficits and constantly add to inflationary forces.