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Exercises for Stimulating Economic Activity through Public Spending: A Case Study for Mexico

Author

Listed:
  • Manuel Torres Favela

    (Universidad Autonoma de Nuevo Leon)

  • Edgar Mauricio Luna Dominguez

    (Universidad Autonoma de Nuevo Leon)

Abstract

The government plays a crucial role in stimulating economic activity, especially during recessions. However, implementing countercyclical fiscal policies often results in a significant increase in public debt. In this study, we propose an alternative to boost economic activity without compromising sovereign debt. We use an NK- DSGE model to analyze disaggregated spending in the Mexican economy and calculate the multipliers for each component individually. Our proposal involves increasing expenditure in the component with the highest multiplier, offset by cuts in the least impactful one, thus not affecting the government budget. We conclude that this approach is optimal for stimulating the economy and achieving fiscal consolidation.

Suggested Citation

  • Manuel Torres Favela & Edgar Mauricio Luna Dominguez, 2024. "Exercises for Stimulating Economic Activity through Public Spending: A Case Study for Mexico," Sobre México. Revista de Economía, Sobre México. Temas en economía, vol. 1(10), pages 5-29.
    • Handle: RePEc:smx:journl:10:5:29
    as

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    File URL: https://sobremexico-revista.ibero.mx/index.php/Revista_Sobre_Mexico/article/view/155
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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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