Financial Crisis, Fiscal Policy and the 1995 GDP Contraction in Mexico

42 Pages Posted: 5 Apr 2005

See all articles by Felipe Meza

Felipe Meza

Instituto Tecnológico Autónomo de México (ITAM) - Centro de Análisis e Investigación Económica

Date Written: March 15, 2005

Abstract

In 1995 Mexico experienced its largest contraction of GDP since the early 20th century. I propose a simple mechanism to partially account for the collapse of economic activity: distortions on consumption and leisure caused by fiscal policy. The contraction of GDP was preceded by a financial crisis. I argue that the response of the government had a significant impact on economic activity. Using a model with distortionary taxation and government consumption, I measure the impact of fiscal policy. Results show that fiscal policy has an important quantitative role in a theory of the contraction of output in Mexico in 1995.

Keywords: Financial crisis, Fiscal policy, GDP

JEL Classification: E32, E62

Suggested Citation

Meza, Felipe, Financial Crisis, Fiscal Policy and the 1995 GDP Contraction in Mexico (March 15, 2005). Available at SSRN: https://ssrn.com/abstract=695903 or http://dx.doi.org/10.2139/ssrn.695903

Felipe Meza (Contact Author)

Instituto Tecnológico Autónomo de México (ITAM) - Centro de Análisis e Investigación Económica ( email )

Av. Camino a Santa Teresa #930
Col. Heroes de Padierna
Mexico City, D.F. 10700
Mexico

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