Mexico Needs a Fiscal Twist: Response to Covid-19 and Beyond

Mexico’s fiscal response to the pandemic has been modest compared to its peers, reflecting the authorities’ desire to not issue new debt for spending. This approach, however, risks a more severe recession and a weaker economic recovery, with further costs in the future. Balancing the need for strong...

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Bibliographic Details
Main Author: Hannan, Swarnali
Other Authors: Honjo, Keiko, Raissi, Mehdi
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2020
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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245 0 0 |a Mexico Needs a Fiscal Twist: Response to Covid-19 and Beyond  |c Swarnali Hannan, Keiko Honjo, Mehdi Raissi 
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300 |a 33 pages 
651 4 |a Mexico 
653 |a COVID-19 
653 |a Health 
653 |a National Government Expenditures and Related Policies: Infrastructures 
653 |a Revenue administration 
653 |a Public investment spending 
653 |a Social assistance spending 
653 |a Infectious & contagious diseases 
653 |a Public finance & taxation 
653 |a National Government Expenditures and Health 
653 |a Health care spending 
653 |a Fiscal Policy 
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653 |a Other Public Investment and Capital Stock 
653 |a Health Behavior 
653 |a Expenditure 
653 |a National Government Expenditures and Welfare Programs 
653 |a Taxation, Subsidies, and Revenue: General 
653 |a Expenditures, Public 
653 |a Macroeconomics 
653 |a Public investments 
653 |a Business and Economics 
653 |a Diseases: Contagious 
653 |a Communicable diseases 
653 |a Public Finance 
653 |a Revenue 
700 1 |a Honjo, Keiko 
700 1 |a Raissi, Mehdi 
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520 |a Mexico’s fiscal response to the pandemic has been modest compared to its peers, reflecting the authorities’ desire to not issue new debt for spending. This approach, however, risks a more severe recession and a weaker economic recovery, with further costs in the future. Balancing the need for stronger near-term fiscal support for the people and the recovery against medium-term discipline, this paper lays out an alternative strategy. We show that credibly announcing a pro-growth and inclusive medium-term fiscal reform upfront—including increased tax capacity, higher public investment and strengthened social safety nets—would open space for larger short-term support and close medium-term fiscal gaps. Model simulations suggest that this package would boost output, limit lasting economic damage from the pandemic, and put debt trajectory on a declining path in the medium term as tax reforms pay off and risk premia decline