Financial Crisis, Fiscal Policy, and the 1995 GDP Contraction in Mexico
In 1995 Mexico experienced its largest contraction of gross domestic product (GDP) since the early twentieth century. I propose a simple mechanism to partially account for the contraction: the effects of changes in fiscal policy. The contraction of GDP was preceded by a financial crisis. The government responded by raising taxes and reducing spending. Using a model with taxation and government consumption, and the business cycle accounting methodology, I measure the impact of fiscal policy. Fiscal policy accounts for 20.7% of the fall in output. Copyright (c) 2008 The Ohio State University.
Volume (Year): 40 (2008)
Issue (Month): 6 (09)
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