THE FISCAL TRAP OF BRAZILIAN MILITARY PENSIONS: MODELING THE LONG-TERM IMPACT OF THE STATE'S SOCIAL OBLIGATIONS ON THE DEFENSE BUDGET DEFICIT

Abstract

This study investigates the complex «fiscal trap» inherent in the Brazilian military pension system, emphasizing how institutional path dependency and expanding social obligations progressively crowd out capital investment from the national defense budget. The research aims to quantify the long-term erosion of sovereign fiscal space by modeling the impact of pension deficits through the lens of accelerated demographic transitions, structural institutional rigidities, and macroeconomic volatility. A sophisticated hybrid modeling framework is developed, integrating Vector Error Correction Models (VECM) to capture short-run stochastic shocks with Dynamic Stochastic General Equilibrium (DSGE) and Overlapping Generations (OLG) structures for robust intertemporal equilibrium analysis. The empirical data, sourced from official state repositories, is refined through advanced interpolation techniques to address data gaps and validated via Monte Carlo simulations. This approach allows for the establishment of rigorous confidence intervals and the mitigation of estimation biases inherent in emerging market data. Quantitative projections indicate an exponential deficit trajectory under the baseline scenario, suggesting that without immediate intervention, social liabilities will lead to a total paralysis of defense modernization and technological procurement. Conversely, the proposed reform scenario-incorporating adjustments to retirement eligibility, age thresholds, and contribution rates-demonstrates significant stabilization potential. The findings confirm the hypothesis that this systemic trap fundamentally compromises national strategic autonomy and long-term defense capabilities. The study contributes to the fiscal sustainability paradigm by synthesizing micro-founded intergenerational dynamics with macroeconomic stability models. It provides a scalable analytical framework for other emerging economies facing similar demographic pressures. Practically, the research advocates for the institutionalization of fiscal rules that safeguard a fixed share of the defense budget for investment, ensuring that social security obligations do not undermine national security imperatives.