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

Swarnali Hannan, Keiko Honjo and Mehdi Raissi

No 2020/215, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Covid-19; fiscal response; tax; social safety nets; general equilibrium model.; WP; social security contribution deferral; cost reduction; tax payment; personal income; property tax; tax administration record; general equilibrium model; WEO GDP; tax instrument; expense estimate; GDP fall; zero rating; lumpsum tax; Social assistance spending; Health care spending; Global (search for similar items in EconPapers)
Pages: 33
Date: 2020-10-13
New Economics Papers: this item is included in nep-hea
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Journal Article: Mexico needs a fiscal twist: Response to Covid-19 and beyond (2022)
Journal Article: Mexico needs a fiscal twist: Response to Covid-19 and beyond (2022)
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