Open AccessPublic Deficits in USMCA Economies During the COVID-19 Economic Crisis
Author(s) -
Juan Alberto Vázquez Muñóz,
Nancy Ivonne Muller Durán,
Josué Zavaleta González
Publication year - 2021
Language(s) - English
Resource type - Journals
ISSN - 1665-5346
DOI - 10.21919/remef.v16i3.608
Subject(s) - economics , fiscal policy , covid-19 , balance (ability) , macroeconomics , monetary economics , economy , medicine , disease , pathology , infectious disease (medical specialty) , physical medicine and rehabilitation
This paper aims to evaluate the fiscal policy implemented by the USMCA economies to deal with the COVID-19 economic crisis. We estimate the economic capacity (potential output) and the Cyclical Primary Balance as a percentage of GDP (CPB) of each of the scrutinized economies. Then we obtain the Cyclical Adjusted Primary Balance as a percentage of GDP (CAPB) as the difference between the Primary Balance (PB) and the CPB. Unlike previous CPB estimations, we obtain the potential output reference as the Economic Capacity methodology (Shaikh and Moudud, 2004), which overcome some alternative methodologies problems. According to our empirical analysis, an asymmetric fiscal policy stands across USMCA economies. Canada and the United States are using a countercyclical fiscal policy, while Mexico uses a procyclical one. Mexico should abandon its current fiscal policy, implement an alternative to support households and firms during crisis periods, and execute a progressive fiscal reform. Our paper's limitation is that we use PB and not its components to estimate the CPB; however, we use a more extended time series, contributing to obtaining more robust results.