Volume 43, Number 168,
January-March 2012
Crisis and Economy Recovery: The Role of Fiscal Policy
Moritz Cruz and Javier Lapa

This study examines the response of five developing economies to recent economic crisis, in terms of economic policy, emphasizing fiscal policy in particular. The analysis has shown that Mexico was the only economy that, in response to the crisis and afterwards during the process of economic recovery, strengthened the measures that originally gave rise to the crisis. That is to say the policy response to the crisis was to keep market sentiment stable. With this, political policy autonomy, in particular fiscal policy, remained restricted, which prevented alternative measures from being implemented to promote economic growth. We have seen that from the perspective of growth models led by aggregate demand, public spending proves essential in maintaining and/or restoring effective demand, and with it employment and investment rates. In crisis or recession, public spending proves crucial. From this point of view, the low increase in public spending contributed to the lack of growth in the Mexican economy (not much more than 2% on average annually) since the 1994-5 crisis.

On the other hand, although Brazil responded as Mexico did to the crisis, she changed her position afterwards, gaining economic policy autonomy. In this sense, the fiscal, monetary and exchange policy that Brazil has applied, among others, has contributed to the sustained growth seen after the crisis. In this context, fiscal policy has been expansive, and can be seen as growth (not of course proportional) both in spending and public revenue.

Finally, from the beginning of their respective crises, Argentina, Korea and Russia broke with the economic policy restrictions imposed by the neoliberal strategy that had been adopted. So the political policy response of each economy consisted of a series of measures that made the reactivation of the real economy a priority over regaining market confidence. The implementation of expansionist fiscal policy stands out in this context and contributed to restoring effective demand and sustained post-crisis economic growth.

In conclusion, the empirical evidence presented here supports the idea that expansionist fiscal policy is important for economic growth, particularly during and after economic crisis and especially when combined with adequate complimentary policies such as monetary and expansive credit policy.

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Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 48, Number 191, October-December 2017 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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